PRUDENTIAL EQUITY FUND, 485APOS, 1995-10-26

PRUDENTIAL EQUITY FUND
485APOS, 1995-10-26

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 26, 1995

SECURITIES ACT REGISTRATION NO. 2-75128
INVESTMENT COMPANY ACT REGISTRATION NO. 811-3326
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM N-1A

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 /X/

PRE-EFFECTIVE AMENDMENT NO. / /

POST-EFFECTIVE AMENDMENT NO. 20 /X/

AND/OR

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940

AMENDMENT NO. 21 /X/

(Check appropriate box or boxes)
------------------------

PRUDENTIAL EQUITY FUND, INC.
(Exact name of registrant as specified in charter)

ONE SEAPORT PLAZA,
NEW YORK, NEW YORK 10292
(Address of Principal Executive Offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 214-1250

S. JANE ROSE, ESQ.
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292

(Name and Address of Agent for Service of Process)

Approximate date of proposed public offering:

As soon as practicable after the effective
date of the Registration Statement.

It is proposed that this filing will become effective
(check appropriate box):

/ / immediately upon filing pursuant to paragraph (b)

/ / on (date) pursuant to paragraph (b)

/ / 60 days after filing pursuant to paragraph (a)(1)

/X/ on January 2, 1996 pursuant to paragraph (a)(1)

/ / 75 days after filing pursuant to paragraph (a)(2)

/ / on (date) pursuant to paragraph (a)(2) of Rule 485

If appropriate, check the following box:

/ / this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.

Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has previously registered an indefinite number of shares of its Common Stock,
par value $.01 per share. The Registrant filed a notice under such Rule for its
fiscal year ended December 31, 1994 on February 28, 1995.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)

<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- ----------------------------------------------- ----------------------------------
<S> <C> <C> <C>
PART A
Item 1. Cover Page........................ Cover Page
Item 2. Synopsis.......................... Fund Expenses; Fund Highlights
Item 3. Condensed Financial Information... Fund Expenses; Financial
Highlights; How the Fund
Calculates Performance
Item 4. General Description of
Registrant........................ Cover Page; Fund Highlights; How
the Fund Invests; General
Information
Item 5. Management of Fund................ Financial Highlights; How the Fund
is Managed; General Information
Item 6. Capital Stock and Other
Securities........................ Taxes, Dividends and
Distributions; General Information
Item 7. Purchase of Securities Being
Offered........................... Shareholder Guide; How the Fund
Values its Shares
Item 8. Redemption or Repurchase.......... Shareholder Guide; How the Fund
Values its Shares; General
Information
Item 9. Pending Legal Proceedings......... Not Applicable

PART B
Item 10. Cover Page........................ Cover Page
Item 11. Table of Contents................. Table of Contents
Item 12. General Information and History... General Information and History
Item 13. Investment Objectives and
Policies.......................... Investment Objective and Policies;
Investment Restrictions
Item 14. Management of the Fund............ Directors and Officers; Manager;
Distributor
Item 15. Control Persons and Principal
Holders of Securities............. Not Applicable
Item 16. Investment Advisory and Other
Services.......................... Manager; Distributor; Custodian,
Transfer and Dividend Disbursing
Agent and Independent Accountants
Item 17. Brokerage Allocation and Other
Practices......................... Portfolio Transactions and
Brokerage
Item 18. Capital Stock and Other
Securities........................ Not Applicable
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered....... Purchase and Redemption of Fund
Shares; Shareholder Investment
Account; Net Asset Value
Item 20. Tax Status........................ Dividends, Distributions and Taxes
Item 21. Underwriters...................... Distributor
Item 22. Calculation of Performance Data... Performance Information
Item 23. Financial Statements.............. Financial Statements

PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Post-Effective Amendment
to the Registration Statement.
</TABLE>
<PAGE>
Prudential Equity Fund, Inc.

Class Z Shares

- ----------------------------------------------------

Prospectus dated January 2, 1996

- ----------------------------------------------------------------

Prudential Equity Fund, Inc. (the Fund) is an open-end, diversified management
investment company whose investment objective is long-term growth of capital.
The Fund will seek to achieve this objective by investing primarily in common
stocks of major, established corporations which, in the opinion of its
investment adviser, are believed to be in sound financial condition and to have
prospects of price appreciation greater than broadly based stock indices. See
"How the Fund Invests--Investment Objective and Policies."

The Fund's purchase and sale of put and call options and related short-term
trading may result in a high portfolio turnover rate. These activities may be
considered speculative and may result in higher risks and costs to the Fund. The
Fund may buy and sell certain derivatives, including options on stock and stock
indices, futures and options on futures, forward foreign currency exchange
contracts, options on foreign currencies and futures contracts on foreign
currencies and options thereon pursuant to limits described herein. There can be
no assurance that the Fund's investment objective will be achieved. See "How the
Fund Invests--Investment Objective and Policies." The Fund's address is One
Seaport Plaza, New York, New York 10292, and its telephone number is (800)
225-1852.

Class Z shares are offered exclusively for sale to the Trustee of the Prudential
Securities 401(k) Plan, a defined contribution plan sponsored by Prudential
Securities Incorporated (the PSI 401(k) Plan or the Plan). Only Class Z shares
are offered through this Prospectus. The Fund also offers Class A, Class B and
Class C shares through the attached Prospectus dated February 28, 1995 (the
Retail Class Prospectus) which is a part hereof.

This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information about
the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated February 28, 1995, which information
is incorporated herein by reference (is legally considered to be a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above.

- --------------------------------------------------------------------------------

INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
- --------------------------------------------------------------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>

FUND EXPENSES

<TABLE>
<CAPTION>
Shareholder Transaction Expenses Class Z Shares
----------------------
<S> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..... None
Maximum Sales Load or Deferred Sales Load
Imposed on Reinvested Dividends......... None
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, whichever is lower)........... None
Redemption Fees.......................... None
Exchange Fee............................. None

Annual Fund Operating Expenses Class Z Shares*
(as a percentage of average net assets) ----------------------
<S> <C>
Management Fees.......................... .47%
12b-1 Fees............................... None
Other Expenses........................... .28
---
Total Fund Operating Expenses............ .75%
---
---
</TABLE>

<TABLE>
<CAPTION>
Example 1 Year 3 years 5 years 10 years
------- ------- ------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
Class Z*............................................... $ 8 $ 24 $ 42 $93
The above example is based on expenses expected to have been incurred if Class Z shares had been in
existence throughout the fiscal year ended December 31, 1995. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist investors in understanding the various costs and expenses that an
investor in Class Z shares of the Fund will bear, whether directly or indirectly. For more complete
descriptions of the various costs and expenses, see "How the Fund is Managed." "Other Expenses" includes
operating expenses of the Fund, such as Directors' and professional fees, registration fees, reports to
shareholders and transfer agency and custodian fees.
<FN>
- ------------
* Estimated based on expenses expected to have been incurred if Class Z
shares had been in existence throughout the fiscal year ended December 31,
1995.
</TABLE>

2
<PAGE>

The following information supplements "How the Fund is Managed--Distributor" in
the Retail Class Prospectus:

Prudential Securities serves as the Distributor of Class Z shares and incurs
the expenses of distributing the Fund's Class Z shares under a Distribution
Agreement with the Fund, none of which is reimbursed by or paid for by the Fund.

The following information supplements "How the Fund Values its Shares" in the
Retail Class Prospectus:

The NAV of Class Z shares will generally be higher than the NAV of Class A,
Class B or Class C shares as a result of the fact that the Class Z shares are
not subject to any distribution and/or service fee. It is expected, however,
that the NAV of the four classes will tend to converge immediately after the
recording of dividends, which will differ by approximately the amount of the
distribution-related accrual differential among the classes.

The following information supplements "Taxes, Dividends and
Distributions--Taxation of Shareholders" in the Retail Class Prospectus:

As a qualified plan, the PSI 401(k) Plan generally pays no federal income tax.
Individual participants in the Plan should consult Plan documents and their own
tax advisers for information on the tax consequences associated with
participating in the PSI 401(k) Plan.

The per share dividends on Class Z shares will generally be higher than the
per share dividends on Class A, Class B or Class C shares as a result of the
fact that Class Z shares are not subject to any distribution or service fee.

The following information replaces the information under "Shareholder Guide--How
to Buy Shares of the Fund" and "Shareholder Guide--How to Sell Your Shares" in
the Retail Class Prospectus:

Class Z shares of the Fund are offered exclusively for sale to the Trustee of
the PSI 401(k) Plan. Such shares may be purchased or redeemed only by the Plan
on behalf of individual Plan participants at NAV without any sales or redemption
charge. Class Z shares are not subject to any minimum investment requirements.
The Plan purchases and redeems shares to implement the investment choices of
individual Plan participants with respect to their contributions in the Plan.
All purchases through the Plan will be for Class Z shares. Individual Plan
participants should consult Plan documents for a description of the procedures
and limitations applicable to the making or changing of investment choices.
Copies of the Plan documents are available from the Prudential Securities
Benefits Department at One Seaport Plaza, 33rd Floor, New York, New York 10292
or by calling (212) 214-7194.

The average net asset value per share at which shares of the Fund are
purchased or redeemed by the Plan for the accounts of individual Plan
participants might be more or less than the net asset value per share prevailing
at the time that such participants made their investment choices or made their
contributions to the Plan.

The following information supplements "Shareholder Guide--How to Exchange Your
Shares" in the Retail Class Prospectus:

Effective as of the date of this Prospectus, Class A shares held through the
PSI 401(k) Plan on behalf of participants will be automatically exchanged at
relative net assest value for Class Z shares. You should contact the Prudential
Securities Benefits Department about how to exchange your Class Z shares. See
"How to Buy Shares of the Fund" above.

The information above also supplements the information under "Fund
Highlights" in the Retail Class Prospectus as appropriate.

3
<PAGE>

PRUDENTIAL EQUITY FUND, INC.
SUPPLEMENT DATED JANUARY 2, 1996 TO PROSPECTUS DATED
FEBRUARY 28, 1995

THE FOLLOWING INFORMATION SUPPLEMENTS "FINANCIAL HIGHLIGHTS" IN THE
PROSPECTUS:

FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the period indicated)
(Class A, Class B and Class C shares)

The following financial highlights for Class A, Class B and Class C shares
are unaudited. This information should be read in conjunction with the financial
statements and the notes thereto, which appear in the Statement of Additional
Information. The financial highlights contain selected data for a Class A, Class
B and Class C share of common stock, respectively, outstanding, total return,
ratios to average net assets and other supplemental data for the period
indicated. The information has been determined based on data contained in the
financial statements.

- --------------------------------------------------------------------------------
1
<PAGE>
FINANCIAL HIGHLIGHTS (UNAUDITED) PRUDENTIAL EQUITY FUND, INC.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1995
------------------------------------
CLASS A CLASS B CLASS C
---------- ---------- ----------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................. $ 13.24 $ 13.24 $ 13.24
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............................................ .13 .08 .08
Net realized and unrealized gain (loss) on investment
transactions.................................................... 2.12 2.12 2.12
---------- ---------- ----------
Total from investment operations............................... 2.25 2.20 2.20
---------- ---------- ----------
Net asset value, end of period................................... $ 15.49 $ 15.44 $ 15.44
---------- ---------- ----------
---------- ---------- ----------
TOTAL RETURN(B).................................................. 16.99% 16.62% 16.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................................. $966,424 1$,861,908 $ 12,065
Average net assets (000)......................................... $757,402 1$,769,956 $ 6,904
Ratios to average net assets:(a)
Expenses, including distribution fees.......................... .92% 1.67% 1.67%
Expenses, excluding distribution fees.......................... .67% .67% .67%
Net investment income.......................................... 1.92% 1.01% 1.14%
Portfolio turnover............................................... 10% 10% 10%
<FN>
- ------------------------------
(a) Annualized.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
</TABLE>

<PAGE>

THE FOLLOWING INFORMATION SUPPLEMENTS "GENERAL INFORMATION--DESCRIPTION OF
COMMON STOCK" IN THE PROSPECTUS:

The Fund is authorized to offer one billion shares of common stock , $.01
par value per share, divided into four classes of shares, designated Class A,
Class B, Class C and Class Z shares. Each class represents an interest in the
same assets of the Fund and is identical in all respects except that (i) each
class is subject to different sales charges and distribution and/or service
expenses (except for Class Z shares, which are not subject to any distribution
and/or service fee), (ii) each class has exclusive voting rights with respect to
its distribution and service plan, if any, and on any other matter submitted to
shareholders that relates solely to its arrangement and has separate voting
rights on any matter submitted to shareholders in which the interests of one
class differ from the interests of any other class, (iii) each class has a
different exchange privilege, (iv) only Class B shares have a conversion feature
and (v) Class Z shares are not subject to any sales or redemption charge and are
offered exclusively for sale to the Trustee of the Prudential Securities 401(k)
Plan, a defined contribution plan sponsored by Prudential Securities. Since
Class B and Class C shares generally bear higher distribution expenses than
Class A shares, the liquidation proceeds to shareholders of those classes are
likely to be lower than to Class A shareholders and to Class Z shareholders,
whose shares are not subject to any distribution and/or service fee. In
accordance with the Fund's Articles of Incorporation, the Board of Directors may
authorize the creation of additional series and classes within such series, with
such preferences, privileges, limitations and voting and dividend rights as the
Directors may determine. Currently, the Fund is offering four classes,
designated Class A, Class B, Class C and Class Z shares.

THE FOLLOWING INFORMATION FOR THE CLASS Z SHARES SUPPLEMENTS "HOW THE FUND
CALCULATES PERFORMANCE" IN THE PROSPECTUS:

The Fund will include performance data for each class of shares offered
through the Prospectus in any advertisement or information including performance
data of the Fund.

<PAGE>

PRUDENTIAL EQUITY FUND, INC.
SUPPLEMENT DATED JANUARY 2, 1996 TO
STATEMENT OF ADDITIONAL INFORMATION DATED
FEBRUARY 28, 1995

THE FOLLOWING INFORMATION SUPPLEMENTS "DIRECTORS AND OFFICERS" IN THE
STATEMENT OF ADDITIONAL INFORMATION:

As of October 13, 1995, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding common stock of the Fund.

As of October 13, 1995, there were no beneficial owners, directly or
indirectly, of more than 5% of the outstanding shares of any class of beneficial
interest.

As of October 13, 1995, Prudential Securities was the record holder for
other beneficial owners of 26,574,111 Class A shares (or 41% of the outstanding
Class A shares), 82,802,545 Class B shares (or 49% of the outstanding Class B
shares) and 853,431 Class C shares (or 78% of the outstanding Class C shares) of
the Fund. In the event of any meetings of shareholders, Prudential Securities
will forward, or cause the forwarding of, proxy materials to the beneficial
owners for which it is the record holder.

THE FOLLOWING INFORMATION SUPPLEMENTS "DISTRIBUTOR" IN THE STATEMENT OF
ADDITIONAL INFORMATION:

THE FOLLOWING INFORMATION SUPPLEMENTS "PURCHASE AND REDEMPTION OF FUND
SHARES" IN THE STATEMENT OF ADDITIONAL INFORMATION:

Shares of the Fund may be purchased at a price equal to the next determined
net asset value per share plus a sales charge which, at the election of the
investor, may be imposed either (i) at the time of purchase (Class A shares) or
(ii) on a deferred basis (Class B or Class C shares). Class Z shares of the Fund
are not subject to any sales or redemption charge and are offered exclusively
for sale to the Trustee of the Prudential Securities 401(k) Plan, a defined
contribution plan sponsored by Prudential Securities (the PSI 401(k) Plan). See
"Shareholder Guide--How to Buy Shares of the Fund" in the Prospectus.

Each class represents an interest in the same assets of the Fund and is
identical in all respects except that (i) each class is subject to different
sales charges and distribution and/or service expenses (except for Class Z
shares, which are not subject to any sales or redemption charge or distribution
and/or service fee), (ii) each class has exclusive voting rights with respect to
its distribution and service plan, if any, and on any other matter submitted to
shareholders that relates solely to its arrangement and has separate voting
rights on any matter submitted to shareholders in which the interests of one
class differ from the interests of any other class, (iii) each class has a
different exchange privilege, (iv) only Class B shares have a conversion feature
and (v) Class Z shares are offered exclusively for sale to the Trustee of the
PSI 401(k) Plan. See "Distributor." Each class also has separate exchange
privileges. See "Shareholder Investment Account--Exchange Privilege."

SPECIMEN PRICE MAKE-UP

Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold at a maximum sales charge of 5% and Class
B*, Class C* and Class Z** shares are sold at net asset value. Using the Fund's
net asset value at June 30, 1995, the maximum offering price of the Fund's
shares is as follows:

<TABLE>
<S> <C>
CLASS A
Net asset value and redemption price per Class A share................... $ 15.49
Maximum sales charge (5% of offering price).............................. .82
---------
Offering price to public................................................. $ 16.31
---------
---------
CLASS B
Net asset value, offering price and redemption price per Class B
share*.................................................................. $ 15.44
---------
---------
CLASS C
Net asset value, offering price and redemption price per Class C
share*.................................................................. $ 15.44
---------
---------
CLASS Z
Net asset value, offering price and redemption price per Class Z
share**................................................................. $ 15.44
---------
---------
<FN>
- ------------------------
* Class B and Class C shares are subject to a contingent deferred sales
charge on certain redemptions. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges" in the Prospectus.
** Class Z shares did not exist prior to January 2, 1996.
</TABLE>

<PAGE>
THE FOLLOWING INFORMATION SUPPLEMENTS "SHAREHOLDER INVESTMENT
ACCOUNT--EXCHANGE PRIVILEGE" IN THE STATEMENT OF ADDITIONAL INFORMATION:

CLASS Z. Class Z shares may be exchanged for Class Z shares of the funds
listed below which participate in the PSI 401(k) Plan. No fee or sales load will
be imposed upon the exchange.
Prudential Allocation Fund
(Balanced Portfolio)
Prudential Equity Income Fund
Prudential Global Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
(Money Market Series)
Prudential Growth Opportunity Fund, Inc.
Prudential High Yield Fund, Inc.
Prudential MoneyMart Assets, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Utility Fund, Inc.

THE FOLLOWING INFORMATION SUPPLEMENTS "PERFORMANCE INFORMATION" IN THE
STATEMENT OF ADDITIONAL INFORMATION:

AVERAGE ANNUAL TOTAL RETURN. The Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B, Class C and Class Z shares. See "How the Fund
Calculates Performance" in the Prospectus.

The average annual total return for Class A shares for the one year, five
year and since inception (January 22, 1990) periods ended June 30, 1995 was
16.5%, 13.4% and 13.6%, respectively. The average annual total return for Class
B shares of the Fund for the one, five and ten year periods ended on June 30,
1995 were 16.7%, 13.6% and 16.3%, respectively. The average annual total return
for Class C shares for the since inception (August 1, 1994) period ended June
30, 1995 was 15.6%. During these periods, no Class Z shares were outstanding.

AGGREGATE TOTAL RETURN. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B,
Class C and Class Z shares. See "How the Fund Calculates Performance" in the
Prospectus.

The aggregate total return for Class A shares for the one year, five year
and since inception periods ended on June 30, 1995 was 22.6%, 142.0% and 110.0%,
respectively. The aggregate total return for Class B shares for the one, five
and ten year periods ended on June 30, 1995 was 21.7%, 90.2% and 278.8%,
respectively. The aggregate total return for Class C shares since inception
period ended June 30, 1995 was 16.6%. During these periods, no Class Z shares
were outstanding.

YIELD. The Fund may from time to time advertise its yield as calculated over
a 30-day period. Yield is calculated separately for Class A, Class B, Class C
and Class Z shares. The Fund's 30-day yields for the period ended June 30, 1995
were 1.58%, 0.93% and 0.93% for the Class A, Class B and Class C shares,
respectively. During this period, no Class Z shares were outstanding.

(ICON)
Prudential
Equity
Fund,
Inc.

(ICON)
SEMI
ANNUAL
REPORT
June 30, 1995

Prudential Mutual Funds
Building Your Future
On Our StrengthSM (LOGO)

<PAGE>

Prudential Equity Fund, Inc.

Performance At A Glance.

U.S. stocks experienced one of their best six months in history during the first
half of 1995. The Standard & Poor's 500 Index gained 20.2%, soaring to new highs
on lower interest rates and rising corporate earnings. Your Fund gained about
17% in total return, performing in line with the average growth equity fund
tracked by Lipper Analytical Services, Inc.

<TABLE>
<CAPTION>
Cumulative Total Returns1 As of 6/30/95
Six One Five Ten Since
Months Year Years Years Inception
<S> <C> <C> <C> <C> <C>
Class A 17.0% 22.6% 97.8% N/A 110.0%
Class B 16.6 21.7 90.2 278.8% 644.4
Class C 16.6 N/A N/A N/A 16.6
Lipper Growth Avg3 17.4 22.2 71.3 243.8 538.0
</TABLE>

<TABLE>
<CAPTION>
Average Annual Total Returns1 As of 6/30/95
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 16.5% 13.4% 13.6%
Class B 16.7 13.6 16.3
Class C N/A N/A N/A
</TABLE>

Past performance is not a guarantee of future results. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost.

1Source: Prudential Mutual Fund Management, Inc. and Lipper Analytical Services,
Inc. The cumulative total returns do not take into account sales charges.

The Average Annual Total Returns do take into account applicable sales charges.
The Fund charges a maximum front end sales load of 5% for Class A shares. Class
B shares are subject to a declining contingent deferred sales charge (CDSC) of
5%, 4%, 3%, 2%, 1% and 1%, for six years. Class C shares have a 1% CDSC for one
year. Class B shares will automatically convert to Class A shares a quarterly
basis, after approximately seven years.

2Inception dates: 1/22/90, Class A; 3/15/82, Class B; 8/1/94, Class C.

3These are the average returns of: 583 funds in the growth category for six
months; 514 funds for one year; 229 funds for five years; 145 funds for 10
years; and 112 funds since inception, as determined by Lipper Analytical
Services, Inc.

GRAPH

Source: Lipper Analytical Services, Inc. Financial markets change, so a mutual
fund's past performance should never be used to predict future results. The
risks to each of the investments listed above are different -- we provide
12-month total returns for several Lipper mutual fund categories to show you
that reaching for higher yields means tolerating more risk. The greater the
risk, the larger the potential reward or loss. In addition, we've added
historical 20-year average annual returns to show that 1995's returns (so far)
are higher than normal. These returns assume the reinvestment of dividends.

Stock funds will fluctuate a great deal. Smaller capitalization stocks offer
greater potential for long term growth but may be more volatile than larger
capitalization stocks. Investors receive higher historical total returns from
stocks than from most other investments.

Bond funds provide more income than stock funds, which can help smooth out their
total returns year by year. But their prices still fluctuate (sometimes a good
deal) and their returns are historically lower than those of stock funds.

Sector or specialty stock funds usually entail the greatest risks because they
are not widely diversified. They are designed for sophisticated investors who
can tolerate additional risk in exchange for higher potential rewards or losses.

Money market funds attempt to preserve a constant share value; they don't
fluctuate much in price but their returns are generally among the lowest
of the major investment categories.

<PAGE>

Thomas R. Jackson, Fund Manager

(picture)

Portfolio
Manager's Report

The Prudential Equity Fund invests in stocks of major, established companies,
primarily in the U.S. We employ a strict value investment style, looking for
stocks whose prices seem too low given their underlying earnings, sales, cash
flow or book value. In other words, the Fund looks for bargains in the current
market. The Fund may invest up to 30% of its assets foreign securities, which
are subject to currency fluctuations and political, social and economic risks.

Overview.
Tom is a strict "value" investor. He chooses stocks for the Fund's portfolio
that are, in his view, temporarily low priced, given the company's perceived
true worth. These are normally stocks of major. established corporations which
have a sound financial foundation and prospects for price appreciation greater
than the broadly based market.

1. Strategy Session.
4,000?
Been There,
Done That.

Many value investment opportunities presented themselves at the beginning of
1995, after U.S. stock prices had declined during the fourth quarter of 1994.
Believing some stocks were simply too cheap not to own at those low levels, we
began buying, reducing our cash position to 7% at year end 1994, the lowest
level in almost two years. And we continued to find bargains in the first
quarter.
The Dow Jones Industrial Average (DJIA) broke the 4,000 mark in February. The
DJIA continued to surge higher during the first half of 1995, ending June 30
above 4,500.
The DJIA is an unmanaged weighted average of 30 of the largest industrial stocks
traded on the New York Stock Exchange. Though it is less comprehensive than the
broader S&P 500, it is a widely followed indicator of U.S. stock prices. With
the averages at ever-higher valuations, we continue to look for fundamentally
strong companies whose stocks seem underpriced. We are finding particularly
good values today in finance and consumer durables, including autos and
retailers. Approximately 40% of the Fund was invested in these areas as of
June 30, 1995.

<PAGE>

2. What Went Well.

Taking Cash to the Bank.
The Fund increased its holdings in finance stocks to 27% of the portfolio as of
June 30, 1995. Finance stocks had been among the hardest hit by the rise in
U.S. interest rates throughout 1994 and looked inexpensive to us.
Investing in finance paid off. As interest rates fell in the U.S. this year,
finance stocks surged, becoming one of the strongest-performing sectors of the
U.S. stock market. Strong holdings in this area included Chase Manhattan and
Bank of New York, financial services companies American Express and Dean Witter
Discover, and insurance company Chubb Corp. They all benefitted from increased
profit margins resulting from lower interest rates.

Five Largest
Holdings*

4.5% Scott Paper
Paper products.

3.3% Digital Equipment
Commercial electronics.

2.9% Chrysler
Automotive.

2.6% Baxter International
Drugs & medical supplies.

2.3% Tandy Corp.
Consumer electronics.

* Expressed as a percentage of total net assets.

3. And Not So Well.
Cash Was Not King.

Though the Fund did not have substantial cash levels throughout the first half
of this year, any cash held back performance in such a strong stock market. The
S&P 500, an unmanaged index, does not have any cash in its makeup. Consequently,
few equity mutual funds performed better than the S&P 500 during the period.

Waiting on Autos
and Retailers.
We continue to seek undervalued retail and autos stocks with good long-term
price appreciation potential. Unfortunately, auto and retail stocks did not
perform as well over the past six months as we had hoped, hurt by consumers'
fears of possible recession earlierthis year. We still find these stocks
inexpensive with great price appreciation potential. Based on that confidence,
we added to our position in Chrysler, Dillards Department Stores and K Mart,
and began new positions in apparel maker Liz Claiborne and off-price retailer
TJX Companies.

Expecting Chips to Dip.
Another move that may have held back the Fund's performance was our relatively
smaller position in technology stocks and in consumer growth stocks such as
foods and beverages. These kinds of stocks were among the strongest performers
during the first half of 1995. At their high prices, though, they did not meet
our value criteria.

4. Looking Ahead.
U.S. interest rates have fallen and corporate earnings remain strong. Despite
the heady levels of the U.S. stock market, we remain optimistic that U.S. stocks
have room to appreciate. Don't forget, though: the last six months comprised one
of the best periods in U.S. stock market history, one not likely to be repeated
anytime soon. More realistically, we believe that U.S. stocks should return to
their historical norms of about 10% a year.
1

<PAGE>

President's Letter July 31, 1995

PICTURE

Dear Shareholder:

You've probably noticed your shareholder report looks different this month.
We've designed it to provide clear, concise and forthright information about
your investment, its performance, risks and potential rewards. And, from time
to time, I'll share some thoughts with you about the industry, mutual fund
trends and how we're responding to them at Prudential Mutual Funds.

On The Hill
One recent trend we like is part of the "Contract with America." It's called the
American Dream Savings Account and it was approved by the House of
Representatives earlier in the year. The Senate has now taken up the proposal,
which would improve the traditional Individual Retirement Account program by
allowing higher non-working spouse contributions. The proposed law would also
allow tax-free and penalty-free withdrawals from the account before age 59 1/2,
for certain expenses. Prudential Mutual Funds supports the proposal and we urge
you to share your opinion about it with your Senator. You can reach your
Senator's office by calling 202-224-3121.

In Closing
One final note: if you're a Class B shareholder, you'll begin noticing a change
on your statements once you've held your shares for seven years. At that time
they will automatically begin to convert to Class A shares on a quarterly basis.
Since Class A shares carry lower annual distribution charges than Class B
shares, your total returns will automatically rise after the conversion.
Conversions started earlier this year and will occur each calendar quarter --
beginning in December, 1995, they'll take place every March, June, September
and December.

I hope you'll find this information useful as you work with your financial
advisor or registered representative to develop your personal investment plan.
Thank you for choosing Prudential Mutual Funds for your mutual fund investment.

Sincerely,

Richard A. Redeker
President

<PAGE>

Portfolio of Investments as
of June 30, 1995 (Unaudited) PRUDENTIAL EQUITY FUND, INC.
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------
LONG-TERM INVESTMENTS--88.2%
COMMON STOCKS--87.3%
------------------------------------------------------------
Aerospace/Defense--3.7%
338,714 Lockheed Corp. $ 21,381,321
870,000 Loral Corp. 45,022,500
500,000 United Technologies Corp. 39,062,500
---------------
105,466,321
- ------------------------------------------------------------
Automobiles & Trucks--4.1%
1,700,000 Chrysler Corp. 81,387,500
600,000 General Motors Corp. 28,125,000
404,800 Navistar International Corp.(a) 6,122,600
---------------
115,635,100
- ------------------------------------------------------------
Banks & Financial Services--15.1%
1,800,000 American Express Co. 63,225,000
800,000 American General Corp. 27,000,000
700,000 Bank of New York Co., Inc. 28,262,500
500,000 BankAmerica Corp. 26,312,500
250,000 Bankers Trust New York Corp. 15,500,000
600,000 Chase Manhattan Corp. 28,200,000
900,000 Comerica, Inc. 28,912,500
1,300,000 Dean Witter Discover & Co. 61,100,000
177,000 First America Bank Corp. 6,571,125
1,000,000 Great Western Financial Corp. 20,625,000
800,000 Lehman Brothers Holdings, Inc. 17,500,000
292,505 Mellon Bank Corp. 12,175,521
256,500 Mercantile Bankshares Corp. 5,771,250
345,600 Morgan (J.P.) & Co., Inc. 24,235,200
500,000 NationsBank Corp. 26,812,500
225,000 Republic New York Corp. 12,600,000
600,000 Salomon, Inc. 24,075,000
---------------
428,878,096
- ------------------------------------------------------------
Chemicals--1.5%
555,500 IMC Fertilizer Group, Inc. 30,066,438
500,000 Wellman, Inc. 13,687,500
---------------
43,753,938
Commercial Services--0.4%
600,000 AAR Corp. $ 10,725,000
- ------------------------------------------------------------
Computer Hardware--6.4%
2,432,100 Amdahl Corp. 27,057,112
800,000 Comdisco, Inc. 24,300,000
2,300,000 Digital Equipment Corp.(a) 93,725,000
412,900 Gerber Scientific, Inc. 6,916,075
300,000 International Business Machines
Corp. 28,800,000
---------------
180,798,187
- ------------------------------------------------------------
Construction & Housing--0.5%
550,000 Centex Corp. 15,537,500
- ------------------------------------------------------------
Diversified Consumer Products--4.7%
400,000 Eastman Kodak Co. 24,250,000
750,000 Gibson Greetings, Inc. 10,031,250
500,000 Loews Corp. 60,500,000
1,400,000 RJR Nabisco Holdings Corp. 39,025,000
---------------
133,806,250
- ------------------------------------------------------------
Drugs & Medical Supplies--3.1%
2,000,000 Baxter International, Inc. 72,750,000
400,000 Upjohn Co. 15,150,000
---------------
87,900,000
- ------------------------------------------------------------
Electric Power--0.8%
170,000 American Electric Power, Inc. 5,971,250
570,000 General Public Utilities Corp. 16,957,500
---------------
22,928,750
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3

<PAGE>

Portfolio of Investments as
of June 30, 1995 (Unaudited) PRUDENTIAL EQUITY FUND, INC.
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------
Electronics--0.6%
15,000 Harris Computer Systems, Inc. $ 206,250
300,000 Harris Corp. 15,487,500
---------------
15,693,750
- ------------------------------------------------------------
Energy Equipment & Services--0.7%
500,000 BJ Services Co.(a) 11,375,000
1,300,000 Noram Energy Corp. 8,450,000
---------------
19,825,000
- ------------------------------------------------------------
Forest Products--6.3%
400,000 International Paper Co. 34,300,000
550,000 James River Corp. of Virginia 15,193,750
125,000 Rayonier Timberlands, L.P. 4,437,500
2,534,100 Scott Paper Co. 125,437,950
---------------
179,369,200
- ------------------------------------------------------------
Hospitals & Other Healthcare Providers--3.0%
400,000 Columbia Healthcare Corp. 17,300,000
1,000,000 Foundation Health Corp.(a) 27,000,000
2,937,874 Tenet Healthcare Corp. 42,231,939
---------------
86,531,939
- ------------------------------------------------------------
Insurance--10.2%
1,000,000 Alexander & Alexander Services,
Inc. 23,875,000
600,000 Chubb Corp. 48,075,000
700,000 Citizens Corp. 11,462,500
406,600 Emphesys Financial Group, Inc. 9,605,925
1,132,700 First Colony Corp. 27,184,800
900,828 Old Republic International Corp. 23,534,131
255,500 Providian Corp. 9,261,875
700,000 SAFECO Corp. 40,206,250
350,000 St. Paul Companies, Inc. 17,237,500
1,300,000 The Equitable Companies Inc. 27,137,500
800,000 Travelers Corp. 35,000,000
1,461,900 Western National Corp. 18,091,013
---------------
290,671,494
Non-Ferrous Metals--2.7%
250,000 Alumax, Inc.(a) $ 7,781,250
600,000 Aluminum Company of America 30,075,000
122,750 AMAX Gold, Inc. 675,125
1,293,000 Cyprus Minerals Co. 36,850,500
---------------
75,381,875
- ------------------------------------------------------------
Oil & Gas Exploration/Production--6.1%
300,000 Amerada Hess Corp. 14,662,500
200,000 Atlantic Richfield Co. 21,950,000
1,100,000 Occidental Petroleum Corp. 25,162,500
1,500,000 Oryx Energy Co. 20,625,000
1,541,030 Societe Nationale Elf Aquitaine,
ADR (France) 57,403,367
717,640 Total SA, ADR (France)(a) 21,708,610
504,400 Union Texas Petroleum Holdings,
Inc. 10,655,450
---------------
172,167,427
- ------------------------------------------------------------
Retail--9.5%
119,700 Dayton-Hudson Corp. 8,588,475
1,642,900 Dillard Department Stores, Inc. 48,260,187
700,000 Federated Department Stores,
Inc.(a) 18,025,000
3,500,000 KMart Corp. 51,187,500
1,000,000 Liz Claiborne, Inc. 21,250,000
500,000 Petrie Stores Corp. 3,375,000
1,207,500 TJX Companies, Inc. 15,999,375
750,000 Toys ``R'' Us, Inc.(a) 21,937,500
1,273,800 Tandy Corp. 66,078,375
1,100,000 Waban, Inc.(a) 16,362,500
---------------
271,063,912
- ------------------------------------------------------------
Specialty Chemicals--0.9%
388,200 Eastman Chemical Co.(a) 23,097,900
100,000 Witco Corp. 3,225,000
---------------
26,322,900
- ------------------------------------------------------------
Steel--0.8%
500,000 Bethlehem Steel Corp.(a) 8,125,000
776,500 Birmingham Steel Corp. 14,365,250
---------------
22,490,250
</TABLE>

- --------------------------------------------------------------------------------
4 See Notes to Financial Statements.

<PAGE>

PRUDENTIAL EQUITY FUND, INC.
Portfolio of Investments as of June 30, 1995 (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------
Telecommunications--4.9%
400,000 ITT Corp. $ 47,000,000
1,446,500 Sprint Corp. 48,638,563
1,100,000 Telefonica de Espana, S.A., ADR
(Spain) 42,625,000
---------------
138,263,563
- ------------------------------------------------------------
Transportation--1.3%
1,000,000 OMI Corp. 6,625,000
550,000 Overseas Shipholding Group, Inc. 11,412,500
1,200,000 Southern Pacific Rail Corp. 18,900,000
---------------
36,937,500
---------------
Total common stocks
(cost $1,931,333,231) 2,480,147,952
---------------
PREFERRED STOCK--0.9%
------------------------------------------------------------
4,000,000 RJR Nabisco Holdings Corp.
Conv. Pfd. Stock
(cost $25,999,617) 24,500,000
---------------
Total long-term investments
(cost $1,957,332,848) 2,504,647,952
---------------
Principal
Amount
(000)
SHORT-TERM INVESTMENT--10.6%
- ------------------------------------------------------------
Repurchase Agreement
$ 300,249 Joint Repurchase Agreement
Account,
6.12%, due 7/3/95
(cost $300,249,000; Note 5) 300,249,000
- ------------------------------------------------------------
Total Investments--98.8%
(cost $2,257,581,848; Note 4) 2,804,896,952
Other assets in excess of
liabilities--1.2% 35,500,082
---------------
Net Assets--100% $ 2,840,397,034
---------------
---------------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5

<PAGE>

Statement of Assets and Liabilities (Unaudited) PRUDENTIAL EQUITY FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS June 30, 1995
Investments, at value (cost $2,257,581,848)................................................................. $2,804,896,952
Cash........................................................................................................ 135,155
Receivable for Fund shares sold............................................................................. 40,304,817
Dividends and interest receivable........................................................................... 8,610,504
Receivable for investments sold............................................................................. 6,006,175
Deferred expenses and other assets.......................................................................... 57,474
--------------
Total assets............................................................................................. 2,860,011,077
--------------
Liabilities
Payable for investments purchased........................................................................... 8,900,887
Payable for Fund shares reacquired.......................................................................... 7,405,869
Distribution fee payable.................................................................................... 1,704,839
Management fee payable...................................................................................... 1,059,415
Withholding tax liability................................................................................... 395,294
Accrued expenses and other liabilities...................................................................... 147,739
--------------
Total liabilities........................................................................................ 19,614,043
--------------
Net Assets.................................................................................................. $2,840,397,034
--------------
--------------
Net assets were comprised of:
Common stock, at par..................................................................................... $ 1,837,443
Paid-in capital in excess of par......................................................................... 2,155,177,857
--------------
2,157,015,300
Undistributed net investment income...................................................................... 56,432,754
Accumulated net realized gain on investments............................................................. 79,633,876
Net unrealized appreciation on investments............................................................... 547,315,104
--------------
Net assets, June 30, 1995................................................................................... $2,840,397,034
--------------
--------------
Class A:
Net asset value and redemption price per share
($966,423,830 / 62,379,617 shares of common stock issued and outstanding)............................. $15.49
Maximum sales charge (5.00% of offering price)........................................................... .82
--------------
Maximum offering price to public......................................................................... $16.31
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($1,861,907,831 / 120,583,294 shares of common stock issued and outstanding).......................... $15.44
--------------
--------------
Class C:
Net asset value, offering price and redemption price per share
($12,065,373 / 781,401 shares of common stock issued and outstanding)................................. $15.44
--------------
--------------
</TABLE>

- --------------------------------------------------------------------------------
6 See Notes to Financial Statements.

<PAGE>

PRUDENTIAL EQUITY FUND, INC.
Statement of Operations (Unaudited)
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
1995
<S> <C>
Net Investment Income
Dividends (net of foreign withholding taxes
of $495,718)............................ $ 27,066,311
Interest................................... 7,227,097
------------
Total income............................ 34,293,408
------------
Expenses
Distribution fee--Class A.................. 938,971
Distribution fee--Class B.................. 8,777,041
Distribution fee--Class C.................. 34,237
Management fee............................. 5,841,182
Transfer agent's fees and expenses......... 1,837,000
Reports to shareholders.................... 298,000
Franchise taxes............................ 127,000
Custodian's fees and expenses.............. 123,000
Registration fees.......................... 82,000
Legal fees................................. 50,000
Audit fee.................................. 22,500
Directors' fees............................ 22,500
Miscellaneous.............................. 35,122
------------
Total expenses.......................... 18,188,553
------------
Net investment income......................... 16,104,855
------------
Realized and Unrealized
Gain on Investments
Net realized gain on investment
transactions............................... 70,275,088
Net change in unrealized appreciation on
investments................................ 301,816,359
------------
Net gain on investments....................... 372,091,447
------------
Net Increase in Net Assets
Resulting from Operations..................... $388,196,302
------------
------------
</TABLE>

PRUDENTIAL EQUITY FUND, INC.
Statement of Changes in Net Assets (Unaudited)
- ---------------------------------------------
- ---------------------------------------------

<TABLE>
<CAPTION>
Six Months
Increase (Decrease) Ended Year Ended
in Net Assets June 30, 1995 December 31, 1994
<S> <C> <C>
Operations
Net investment income..... $ 16,104,855 $ 20,683,314
Net realized gain on
investments............ 70,275,088 81,494,071
Net change in unrealized
appreciation of
investments............ 301,816,359 (68,377,840)
--------------- -----------------
Net increase in net assets
resulting from
operations............. 388,196,302 33,799,545
--------------- -----------------
Net equalization debit
(credit).................. (7,361,338) 6,402,186
--------------- -----------------
Dividends and distributions (Note 1)
Dividends from net
investment income
Class A................ -- (4,339,236)
Class B................ -- (16,849,152)
Class C................ -- (14,701)
--------------- -----------------
-- (21,203,089)
--------------- -----------------
Distributions from net
realized
capital gains
Class A................ -- (12,591,770)
Class B................ -- (91,043,748)
Class C................ -- (95,226)
--------------- -----------------
-- (103,730,744)
--------------- -----------------
Fund share transactions (net
of share conversions)
(Note 6)
Proceeds from shares
sold................... 1,196,420,818 1,454,763,135
Net asset value of shares
issued in reinvestment
of dividends and
distributions.......... -- 117,059,026
Cost of shares
reacquired............. (987,010,424) (1,264,107,170)
--------------- -----------------
Net increase in net assets
from Fund share
transactions........... 209,410,394 307,714,991
--------------- -----------------
Total increase............... 590,245,358 222,982,889
Net Assets
Beginning of period.......... 2,250,151,676 2,027,168,787
--------------- -----------------
End of period................ $ 2,840,397,034 $ 2,250,151,676
--------------- -----------------
--------------- -----------------
</TABLE>

- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7

<PAGE>

Notes to Financial Statements (Unaudited) PRUDENTIAL EQUITY FUND, INC.
- -------------------------------------------------------------------------------
Prudential Equity Fund, Inc. (the ``Fund''), is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
The investment objective of the Fund is long-term growth of capital by investing
primarily in common stocks of major established corporations.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Securities Valuation: Investments, including options, traded on a national
securities or commodities exchange and NASDAQ National Market equity securities
are valued at the last reported sales price on the primary exchange on which
they are traded. Securities traded in the over-the-counter market (including
securities listed on exchanges whose primary market is believed to be
over-the-counter) and listed securities for which no sale was reported on that
date are valued at the mean between the last reported bid and asked prices.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost which approximates market value.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian or designated
subcustodians, as the case may be under triparty repurchase agreements, take
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction, including accrued interest.
If the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
All securities are valued as of 4:15 P.M., New York time.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis.
Net investment income, other than distribution fees, and unrealized and realized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of net assets of each class at the beginning of the day.
Dividends and Distributions: Dividends from net investment income are declared
and paid semi-annually. The Fund will distribute at least annually net capital
gains in excess of loss carryforwards, if any. Dividends and distributions are
recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
Equalization: The Fund follows the accounting practice known as equalization by
which a portion of the proceeds from sales and costs of reacquisitions of Fund
shares, equivalent on a per share basis to the amount of distributable net
investment income on the date of the transaction, is credited or charged to
undistributed net investment income. As a result, undistributed net investment
income per share is unaffected by sales or reacquisitions of the Fund's shares.
Taxes: It is the Fund's policy to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable net income and net capital gains, if any, to its
shareholders. Therefore, no federal income tax provision is required.
Withholding taxes on foreign dividends have been provided for in accordance with
the Fund's understanding of the applicable country's tax rules and rates.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Mutual Fund Management, Inc.
(``PMF''). Pursuant to this agreement, PMF has responsibility for all investment
advisory services and supervises the subadviser's performance of such services.
PMF has entered into a subadvisory agreement with The Prudential Investment
Corporation (``PIC''); PIC furnishes investment advisory services in connection
with the management of the Fund. PMF pays for the cost of the subadviser's
services, the compensation of officers of the Fund, occupancy and certain
clerical and bookkeeping costs of the Fund. The Fund bears all other costs and
expenses.
The management fee paid PMF is computed daily and payable monthly, at an annual
rate of .50 of 1% of the Fund's average daily net assets up to $500 million,
.475 of 1% of the next $500 million of average daily net assets and .45 of 1% of
the Fund's average daily net assets in excess of $1 billion.
The Fund has distribution agreements with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acts as the distributor of the Class A
- --------------------------------------------------------------------------------
8

<PAGE>

Notes to Financial Statements (Unaudited) PRUDENTIAL EQUITY FUND, INC.
- -------------------------------------------------------------------------------
shares of the Fund, and with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B and Class C shares of the Fund (collectively
the ``Distributors''). The Fund compensates the Distributors for distributing
and servicing the Fund's Class A, Class B and Class C shares, pursuant to plans
of distribution, (the ``Class A, B and C Plans'') regardless of expenses
actually incurred by them. The distribution fees are accrued daily and payable
monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
for distribution-related activities at an annual rate of up to .30 of 1%, 1% and
1%, of the average daily net assets of the Class A, B and C shares,
respectively. With respect to the Class A Plan, PMFD has agreed to limit its
distribution-related fees to .25 of 1% of average daily net assets for the
fiscal year ending December 31, 1995. With respect to the Class B and Class C
Plan, PMFD has agreed to limit its distribution fee to 1% of average daily net
assets of Class B and Class C shares, respectively, for the fiscal year ending
December 31, 1995.
PMFD has advised the Fund that it has received approximately $1,067,142 in
front-end sales charges resulting from sales of Class A shares during the period
ended June 30, 1995. From these fees, PMFD paid such sales charges to PSI and
Pruco Securities Corporation, affiliated broker-dealers, which in turn paid
commissions to salespersons and incurred other distribution costs.
PSI advised the Fund that for the period ended June 30, 1995, it received
approximately $262,100 in contingent deferred sales charges imposed upon
redemptions by certain Class B and Class C shareholders.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent and during the period ended June 30,
1995, the Fund incurred fees of approximately $1,637,000 for the services of
PMFS. As of June 30, 1995, $286,000 of such fees were due to PMFS. Transfer
agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to non-affiliates.
For the six months ended June 30, 1995, PSI earned approximately $66,700 in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the period ended June 30, 1995 aggregated $267,751,756 and $222,512,137,
respectively.
The federal income tax basis of the Fund's investments at June 30, 1995 was
substantially the same as for financial reporting purposes and, accordingly, net
unrealized appreciation for federal income tax purposes was $547,315,104 (gross
unrealized appreciation--$605,955,360; gross unrealized
depreciation--$58,640,256).
- ------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. As of June 30, 1995, the Fund
has a 44.38% undivided interest in the joint account. The undivided interest for
the Fund represents $300,249,000 in the principal amount. As of such date, each
repurchase agreement in the joint account and the collateral therefor were as
follows:
Bear Stearns & Co. Inc., 6.125%, in the principal amount of $200,000,000,
repurchase price $200,102,083, due 7/3/95. The value of the collateral including
accrued interest is $204,321,562.
CS First Boston Corp., 6.13%, in the principal amount of $160,000,000,
repurchase price $160,081,733, due 7/3/95. The value of the collateral including
accrued interest is $163,246,196.
Goldman Sachs & Co., 6.10%, in the principal amount of $116,557,000, repurchase
price $116,616,250, due 7/3/95. The value of the collateral including accrued
interest is $118,889,059.
Smith Barney Inc., 6.13%, in the principal amount of $200,000,000, repurchase
price $200,102,166, due 7/3/95. The value of the collateral including accrued
interest is $204,000,775.
- ------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B and Class C shares. Class A shares are sold
with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a contingent
deferred sales charge of 1% during the first year.
- --------------------------------------------------------------------------------
9

<PAGE>

Notes to Financial Statements (Unaudited) PRUDENTIAL EQUITY FUND, INC.
- -------------------------------------------------------------------------------
Class B shares will automatically convert to Class A shares on a quarterly basis
approximately seven years after purchase commencing in February 1995.
There are 750 million shares of common stock, $.01 par value per share, dividend
into three classes, designated Class A, Class B and Class C common stock, each
of which consists of 250 million authorized shares.
Transactions in shares of common stock were as follows:

<TABLE>
<CAPTION>
Class A Shares Amount
- --------------------------- ---------------- ---------------
<S> <C> <C>
Six months ended
June 30, 1995:
Shares sold................ 37,267,001 $ 538,023,186
Shares reacquired.......... (33,311,341) (482,003,962)
---------------- ---------------
Net increase in shares
outstanding before
conversion............... 3,955,660 56,019,224
Shares issued upon
conversion from Class
B........................ 37,542,004 521,236,150
---------------- ---------------
Net increase in shares
outstanding.............. 41,497,664 $ 577,255,374
---------------- ---------------
---------------- ---------------
Year ended December 31,
1994:
Shares sold................ 18,103,878 $ 247,518,724
Shares issued in
reinvestment of dividends
and distributions........ 1,247,329 16,412,624
Shares reacquired.......... (15,323,527) (209,456,746)
---------------- ---------------
Net increase in shares
outstanding.............. 4,027,680 $ 54,474,602
---------------- ---------------
---------------- ---------------
Class B
Six months ended
June 30, 1995:
Shares sold................ 46,088,777 $ 649,995,682
Shares reacquired.......... (36,795,280) (504,489,967)
---------------- ---------------
Net decrease in shares
outstanding before
conversion............... 9,293,497 145,505,715
Shares reacquired upon
conversion into Class
A........................ (37,545,126) (521,236,150)
---------------- ---------------
Net decrease in shares
outstanding.............. (28,251,629) $ (375,730,435)
---------------- ---------------
---------------- ---------------

Class B Shares Amount
---------------- ---------------
Year ended December 31,
1994:
Shares sold................ 89,556,181 $ 1,203,380,489
Shares issued in
reinvestment of dividends
and distributions........ 7,818,109 100,544,482
Shares reacquired.......... (78,586,261) (1,053,979,338)
---------------- ---------------
Net increase in shares
outstanding.............. 18,788,029 $ 249,945,633
---------------- ---------------
---------------- ---------------
Class C
- ---------------------------
Six months ended June 30,
1995:
Shares sold................ 578,388 $ 8,401,950
Shares reacquired.......... (35,671) (516,495)
---------------- ---------------
Net increase in shares
outstanding.............. 542,717 $ 7,885,455
---------------- ---------------
---------------- ---------------
August 1, 1994(a) through
December 31, 1994:
Shares sold................ 279,964 $ 3,863,922
Shares issued in
reinvestment of dividends
and distributions........ 7,877 101,920
Shares reacquired.......... (49,158) (671,086)
---------------- ---------------
Net increase in shares
outstanding.............. 238,683 $ 3,294,756
---------------- ---------------
---------------- ---------------
</TABLE>
- ---------------
(a) Commencement of offering of Class C shares.

- ------------------------------------------------------------
Note 7. Dividends and Distributions
Subsequent to June 30, 1995, the Board of Directors of the Fund declared
dividends from undistributed net investment income to Class A shareholders of
$.12 per share and Class B and C shareholders of $.07 per share and a long-term
capital gains distribution of $.0525 to Class A, Class B, and Class C
shareholders payable on August 1, 1995 to shareholders of record on July 27,
1995.
- -------------------------------------------------------------------------------
10

<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL EQUITY FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------------------------
January 22,
Six Months 1990(b)
Ended Year Ended December 31, through
June 30, ---------------------------------------------- December 31,
1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
---------- -------- -------- -------- ------- ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $ 13.24 $ 13.80 $ 12.07 $ 11.39 $ 9.84 $ 11.25
---------- -------- -------- -------- ------- ---------
Income from investment operations
Net investment income........................ .13 .22 .23 .24 .27 .31
Net realized and unrealized gain (loss) on
investment transactions.................... 2.12 .09 2.42 1.30 2.09 (.15)
---------- -------- -------- -------- ------- --------
Total from investment operations.......... 2.25 .31 2.65 1.54 2.36 .16
---------- -------- -------- -------- ------- --------
Less distributions
Dividends from net investment income......... -- (.22) (.22) (.23) (.24) (.35)
Distributions from net realized capital
gains...................................... -- (.65) (.70) (.63) (.57) (1.22)
---------- -------- -------- -------- ------- ------
Total distributions....................... -- (.87) (.92) (.86) (.81) (1.57)
---------- -------- -------- -------- ------- ------
Net asset value, end of period............... $ 15.49 $ 13.24 $ 13.80 $ 12.07 $ 11.39 $ 9.84
---------- -------- -------- -------- ------- ------
---------- -------- -------- -------- ------- ------
TOTAL RETURN(c):............................. 16.99% 2.38% 22.14% 13.65% 24.55% 0.29%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............. $966,424 $276,412 $232,535 $136,834 $82,845 $ 30,264
Average net assets (000)..................... $757,402 $254,596 $190,778 $111,489 $57,845 $ 27,371
Ratios to average net assets:
Expenses, including distribution fees..... .92%(a) 1.00% .91% .94% .97% 1.01%(a)
Expenses, excluding distribution fees..... .67%(a) .75% .71% .74% .77% .84%(a)
Net investment income..................... 1.92%(a) 1.62% 1.71% 1.91% 2.36% 2.86%(a)
Portfolio turnover........................... 10% 12% 21% 22% 19% 76%
</TABLE>

- ---------------
(a) Annualized.
(b) Commencement of offering of Class A shares.
(c) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on
the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a full
year are not annualized.
(d) Commencement of offering of Class C shares.

- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11

<PAGE>

Financial Highlights (Unaudited) PRUDENTIAL EQUITY FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
--------------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
June 30, -----------------------------------------------------------------
1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
---------- ---------- ---------- ---------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $ 13.24 $ 13.80 $ 12.08 $ 11.40 $ 9.85 $ 11.83
---------- ---------- ---------- ---------- -------- --------
Income from investment operations
Net investment income........................ .08 .12 .12 .14 .18 .26
Net realized and unrealized gain (loss) on
investment transactions.................... 2.12 .09 2.42 1.30 2.09 (.76)
---------- ---------- ---------- ---------- -------- --------
Total from investment operations.......... 2.20 .21 2.54 1.44 2.27 (.50)
---------- ---------- ---------- ---------- -------- --------
Less distributions
Dividends from net investment income......... -- (.12) (.12) (.13) (.15) (.26)
Distributions from net realized capital
gains...................................... -- (.65) (.70) (.63) (.57) (1.22)
---------- ---------- ---------- ---------- -------- --------
Total distributions....................... -- (.77) (.82) (.76) (.72) (1.48)
---------- ---------- ---------- ---------- -------- --------
Net asset value, end of period............... $ 15.44 $ 13.24 $ 13.80 $ 12.08 $ 11.40 $ 9.85
---------- ---------- ---------- ---------- -------- --------
---------- ---------- ---------- ---------- -------- --------
TOTAL RETURN(c):............................. 16.62% 1.60% 21.13% 12.72% 23.55% (4.28)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............. $1,861,908 $1,970,580 $1,794,634 $1,203,740 $904,382 $578,213
Average net assets (000)..................... $1,769,956 $1,901,972 $1,522,992 $1,042,028 $757,485 $583,016
Ratios to average net assets:
Expenses, including distribution fees..... 1.67%(a) 1.75% 1.71% 1.74% 1.77% 1.89%
Expenses, excluding distribution fees..... .67%(a) .75% .71% .74% .77% .89%
Net investment income..................... 1.01%(a) .87% .91% 1.11% 1.56% 2.27%
Portfolio turnover........................... 10% 12% 21% 22% 19% 76%
<CAPTION>
Class C
August 1,
Six Months 1994(d)
Ended through
June 30, December 31,
1995 1994
<S> <C> <C>
---------- ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $ 13.24 $14.02
---------- ------
Income from investment operations
Net investment income........................ .08 .09
Net realized and unrealized gain (loss) on
investment transactions.................... 2.12 (.10)
---------- ------
Total from investment operations.......... 2.20 (.01)
---------- ------
Less distributions
Dividends from net investment income......... -- (.12)
Distributions from net realized capital
gains...................................... -- (.65)
---------- ------
Total distributions....................... -- (.77)
---------- ------
Net asset value, end of period............... $ 15.44 $13.24
---------- ------
---------- ------
TOTAL RETURN(c):............................. 16.62% .01%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............. $ 12,065 $3,160
Average net assets (000)..................... $ 6,904 $1,847
Ratios to average net assets:
Expenses, including distribution fees..... 1.67%(a) 1.83%(a)
Expenses, excluding distribution fees..... .67%(a) .83%(a)
Net investment income..................... 1.14%(a) .90%(a)
Portfolio turnover........................... 10% 12%
</TABLE>

- -------------------------------------------------------------------------------
12 See Notes to Financial Statements.
<PAGE>

Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852

Directors
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas T. Mooney
Thomas O'Brien
Richard A. Redeker
Nancy H. Teeters

Officers
Richard A. Redeker, President
David W. Drasnin, Vice President
Robert F. Gunia, Vice President
Eugene S. Stark, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary

Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292

Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101

Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292

Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171

Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906

Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036

Legal Counsel
Sullivan & Cromwell
125 Broad Street
New York, NY 10004

The accompanying financial statements as of June 30, 1995 were not audited and,
accordingly, no opinion is expressed on them.This report is not authorized for
distribution to prospective investors unless preceded or accompanied by a
current prospectus.

<PAGE>

Prudential Mutual Funds
Building Your Future
On Our StrengthSM (LOGO)

BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY

Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852

744316100
744316209 MF101E2
744316308 Cat# 430253B

<PAGE>

PRUDENTIAL EQUITY FUND, INC.

- ----------------------------------------------------

PROSPECTUS DATED FEBRUARY 28, 1995

- ----------------------------------------------------------------

- --------------------------------------------------------------------------------

INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
- --------------------------------------------------------------------------------

The following summary is intended to highlight certain information contained
in this Prospectus and is qualified in its entirety by the more detailed
information appearing elsewhere herein.

WHAT IS PRUDENTIAL EQUITY FUND, INC.?

Prudential Equity Fund, Inc. is a mutual fund. A mutual fund pools the
resources of investors by selling its shares to the public and investing the
proceeds of such sale in a portfolio of securities designed to achieve its
investment objective. Technically, the Fund is an open-end, diversified
management investment company.

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is long-term growth of capital. It seeks to
achieve this objective by investing primarily in common stocks of major,
established corporations which, in the opinion of the Fund's investment adviser,
are believed to be in sound financial condition and to have prospects of price
appreciation greater than broadly based stock indices. The Fund may also invest
in preferred stocks and bonds. There can be no assurance that the Fund's
objective will be achieved. See "How the Fund Invests--Investment Objective and
Policies" at page 8.

RISK FACTORS AND SPECIAL CHARACTERISTICS

In seeking to achieve its investment objective, the Fund may utilize
derivatives, including the purchase and sale of put and call options, and may
engage in related short-term trading which may result in a high portfolio
turnover rate. The Fund may also buy and sell stock index options, futures and
options on futures, forward foreign currency exchange contracts, options on
foreign currencies and futures contracts on foreign currencies and options
thereon pursuant to limits described herein. See "How the Fund
Invests--Investment Objective and Policies" at page 8. These various hedging and
income enhancement strategies, including the use of derivatives, may be
considered speculative and may result in higher risks and costs to the Fund. See
"How the Fund Invests--Hedging and Income Enhancement Strategies--Risks of
Hedging and Income Enhancement Strategies" at page 13.

In addition, the Fund may invest up to 30% of its total assets in foreign
securities. Investing in securities of foreign companies and countries involves
certain considerations and risks not typically associated with investing in
securities of domestic companies. See "How the Fund Invests--Other Investments
and Policies" at page 14.

WHO MANAGES THE FUND?

Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager of
the Fund and is compensated for its services at an annual rate of .50 of 1% of
the Fund's average daily net assets up to and including $500 million, .475 of 1%
of the next $500 million and .45 of 1% of the average daily net assets in excess
of $1 billion. As of January 31, 1995, PMF served as manager or administrator to
69 investment companies, including 39 mutual funds, with aggregate assets of
approximately $45 billion. The Prudential Investment Corporation (PIC or the
Subadviser) furnishes investment advisory services in connection with the
management of the Fund under a Subadvisory Agreement with PMF. See "How the Fund
is Managed--Manager" at page 16.

WHO DISTRIBUTES THE FUND'S SHARES?

Prudential Mutual Fund Distributors, Inc. (PMFD) acts as the Distributor of
the Fund's Class A shares and is paid an annual distribution and service fee
which is currently being charged at the rate of .25 of 1% of the average daily
net assets of the Class A shares.

Prudential Securities Incorporated (Prudential Securities or PSI), a major
securities underwriter and securities and commodities broker, acts as the
Distributor of the Fund's Class B and Class C shares and is paid an annual
distribution and service fee at the rate of 1% of the average daily net assets
of each of the Class B and Class C shares.

See "How the Fund is Managed--Distributor" at page 16.

2
<PAGE>

WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment for Class A and Class B shares is $1,000 per
class and $5,000 for Class C shares, except that the minimum initial investment
for Class C shares may be waived from time to time. The minimum subsequent
investment is $100. There is no minimum investment requirement for certain
retirement plans and employee savings plans or custodial accounts for the
benefit of minors. For purchases made through the Automatic Savings Accumulation
Plan, the minimum initial and subsequent investment is $50. See "Shareholder
Guide--How to Buy Shares of the Fund" at page 23 and "Shareholder
Guide--Shareholder Services" at page 32.

HOW DO I PURCHASE SHARES?

You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund through its transfer
agent, Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent), at
the net asset value per share (NAV) next determined after receipt of your
purchase order by the Transfer Agent or Prudential Securities plus a sales
charge which may be imposed either (i) at the time of purchase (Class A shares)
or (ii) on a deferred basis (Class B or Class C shares). See "How the Fund
Values its Shares" at page 19 and "Shareholder Guide--How to Buy Shares of the
Fund" at page 23.

WHAT ARE MY PURCHASE ALTERNATIVES?

The Fund offers three classes of shares:

- Class A Shares: Sold with an initial sales charge of up to 5% of the
offering price.

- Class B Shares: Sold without an initial sales charge but are subject
to a contingent deferred sales charge or CDSC
(declining from 5% to zero of the lower of the amount
invested or the redemption proceeds) which will be
imposed on certain redemptions made within six years
of purchase. Although Class B shares are subject to
higher ongoing distribution-related expenses than
Class A shares, Class B shares will automatically
convert to Class A shares (which are subject to lower
ongoing distribution-related expenses) approximately
seven years after purchase.

- Class C Shares: Sold without an initial sales charge and, for one year
after purchase, are subject to a 1% CDSC on
redemptions. Like Class B shares, Class C shares are
subject to higher ongoing distribution-related
expenses than Class A shares but do not convert to
another class.

See "Shareholder Guide--Alternative Purchase Plan" at page 24.

HOW DO I SELL MY SHARES?

You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order. However,
the proceeds of redemptions of Class B and Class C shares may be subject to a
CDSC. See "Shareholder Guide--How to Sell Your Shares" at page 27.

HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?

The Fund expects to pay dividends of net investment income, if any,
semi-annually and make distributions of any net capital gains at least annually.
Dividends and distributions will be automatically reinvested in additional
shares of the Fund at NAV without a sales charge unless you request that they be
paid to you in cash. See "Taxes, Dividends and Distributions" at page 20.

3
<PAGE>
FUND EXPENSES

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES+ CLASS A SHARES CLASS B SHARES CLASS C SHARES
---------------------- -------------------------- --------------------------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..... 5% None None
Maximum Sales Load or Deferred Sales Load
Imposed on Reinvested Dividends......... None None None
None
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, whichever is lower)........... 5% during the first 1% on redemptions made
year, decreasing by 1% within one year of
annually to 1% in the purchase
fifth and sixth years and
0% the seventh year*
Redemption Fees.......................... None None None
Exchange Fee............................. None None None

<CAPTION>
ANNUAL FUND OPERATING EXPENSES CLASS A SHARES CLASS B SHARES CLASS C SHARES**
(as a percentage of average net assets) ---------------------- -------------------------- --------------------------
<S> <C> <C> <C>
Management Fees........................... .47% .47% .47%
12b-1 Fees............................... .25++ 1.00 1.00
Other Expenses........................... .28 .28 .28
----- ----- -----
Total Fund Operating Expenses............ 1.00% 1.75% 1.75%
----- ----- -----
----- ----- -----
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------- ------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
Class A................................................ $ 60 $ 80 $102 $166
Class B................................................ $ 68 $ 85 $105 $177
Class C**.............................................. $ 28 $ 55 $ 95 $206
You would pay the following expenses on the same
investment, assuming no redemption:
Class A................................................ $ 60 $ 80 $102 $166
Class B................................................ $ 18 $ 55 $ 95 $177
Class C**.............................................. $ 18 $ 55 $ 95 $206
The above example with respect to Class C shares is based on restated data for the Fund's fiscal year
ended December 31, 1994. The above example with respect to Class A and Class B shares is based on actual
data for the Fund's fiscal year ended December 31, 1994. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist investors in understanding the various costs and expenses that an
investor in the Fund will bear, whether directly or indirectly. For more complete descriptions of the
various costs and expenses, see "How the Fund is Managed." "Other Expenses" includes operating expenses of
the Fund, such as Directors' and professional fees, registration fees, reports to shareholders and
transfer agency and custodian fees.
<FN>
- -------------
* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide-- Conversion
Feature--Class B Shares."
** Estimated based on expenses expected to have been incurred if Class C
shares had been in existence during the entire fiscal year ended December
31, 1994.
+ Pursuant to rules of the National Association of Securities Dealers, Inc.,
the aggregate initial sales charges, deferred sales charges and asset-based
sales charges on shares of the Fund may not exceed 6.25% of total gross
sales, subject to certain exclusions. This 6.25% limitation is imposed on
each class of the Fund rather than on a per shareholder basis. Therefore,
long-term shareholders of the Fund may pay more in total sales charges than
the economic equivalent of 6.25% of such shareholders' investment in such
shares. See "How the Fund is Managed--Distributor."
++ Although the Class A Distribution and Service Plan provides that the Fund
may pay a distribution fee of up to .30 of 1% per annum of the average
daily net assets of the Class A shares, the Distributor has agreed to limit
its distribution fees with respect to Class A shares of the Fund to no more
than .25 of 1% of the average daily net assets of the Class A shares for
the fiscal year ending December 31, 1995. Total Fund Operating Expenses
without such limitation would be 1.05%. See "How the Fund is Managed--
Distributor."
</TABLE>

4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS A SHARES)

The following financial highlights have been audited by Price Waterhouse
LLP, independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a Class A share of
common stock outstanding, total return, ratios to average net assets and other
supplemental data for the periods indicated. The information is based on data
contained in the financial statements.

<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------
JANUARY 22,
1990+
YEAR ENDED DECEMBER 31, THROUGH
-------------------------------------------- DECEMBER 31,
1994 1993 1992 1991 1990
--------- --------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period.... $ 13.80 $ 12.07 $ 11.39 $ 9.84 $ 11.25
--------- --------- --------- -------- -------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------
Net investment income................... .22 .23 .24 .27 .31
Net realized and unrealized gain (loss)
on investment transactions............. .09 2.42 1.30 2.09 (.15)
--------- --------- --------- -------- -------------
Total from investment operations...... .31 2.65 1.54 2.36 .16
--------- --------- --------- -------- -------------
LESS DISTRIBUTIONS
- --------------
Dividends from net investment income.... (.22) (.22) (.23) (.24) (.35)
Distributions from net realized capital
gains.................................. (.65) (.70) (.63) (.57) (1.22)
--------- --------- --------- -------- -------------
Total distributions................... (.87) (.92) (.86) (.81) (1.57)
--------- --------- --------- -------- -------------
Net asset value, end of period.......... $ 13.24 $ 13.80 $ 12.07 $ 11.39 $ 9.84
--------- --------- --------- -------- -------------
--------- --------- --------- -------- -------------
TOTAL RETURN#: 2.38% 22.14% 13.65% 24.55% 0.29%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $ 276,412 $ 232,535 $ 136,834 $ 82,845 $30,264
Average net assets (000)................ $ 254,596 $ 190,778 $ 111,489 $ 57,845 $27,371
Ratios to average net assets:
Expenses, including distribution
fees................................. 1.00% .91% .94% .97% 1.01%*
Expenses, excluding distribution
fees................................. .75% .71% .74% .77% .84%*
Net investment income................. 1.62% 1.71% 1.91% 2.36% 2.86%*
Portfolio turnover...................... 12% 21% 22% 19% 76%
<FN>
- -------------
*Annualized.
+Commencement of offering of Class A shares.
#Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
</TABLE>

5
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS B SHARES)

The following financial highlights, with respect to the five-year period
ended December 31, 1994, have been audited by Price Waterhouse LLP, independent
accountants, whose report thereon was unqualified. This information should be
read in conjunction with the financial statements and notes thereto, which
appear in the Statement of Additional Information. The following financial
highlights contain selected data for a Class B share of common stock
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. The information is based on data contained in
the financial statements.

<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988* 1987 1986 1985++
----------- ----------- ----------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
year........... $ 13.80 $ 12.08 $ 11.40 $ 9.85 $ 11.83 $ 9.18 $ 8.19 $ 9.04 $ 9.05 $ 7.21
----------- ----------- ----------- --------- --------- --------- --------- --------- --------- ---------
INCOME FROM
INVESTMENT
OPERATIONS
- ----------------
Net investment
income......... .12 .12 .14 .18 .26 .19 .19 .03 .12 .14
Net realized and
unrealized gain
(loss) on
investment
transactions... .09 2.42 1.30 2.09 (.76) 2.75 .99 .11 1.15 2.12
----------- ----------- ----------- --------- --------- --------- --------- --------- --------- ---------
Total from
investment
operations... .21 2.54 1.44 2.27 (.50) 2.94 1.18 .14 1.27 2.26
----------- ----------- ----------- --------- --------- --------- --------- --------- --------- ---------
LESS
DISTRIBUTIONS
- ---------------
Dividends from
net investment
income......... (.12) (.12) (.13) (.15) (.26) (.20) (.19) (.15) (.06) (.05)
Distributions
from net
realized
capital
gains.......... (.65) (.70) (.63) (.57) (1.22) (.09) -- (.84) (1.22) (.37)
----------- ----------- ----------- --------- --------- --------- --------- --------- --------- ---------
Total
distributions... (.77) (.82) (.76) (.72) (1.48) (.29) (.19) (.99) (1.28) (.42)
----------- ----------- ----------- --------- --------- --------- --------- --------- --------- ---------
Net asset value,
end of year.... $ 13.24 $ 13.80 $ 12.08 $ 11.40 $ 9.85 $ 11.83 $ 9.18 $ 8.19 $ 9.04 $ 9.05
----------- ----------- ----------- --------- --------- --------- --------- --------- --------- ---------
----------- ----------- ----------- --------- --------- --------- --------- --------- --------- ---------
TOTAL
RETURN+:....... 1.60% 21.13% 12.72% 23.55% (4.28)% 32.04% 14.39% 0.87% 14.66% 32.25%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end
of year
(000).......... $1,970,580 $1,794,634 $1,203,740 $904,382 $578,213 $629,230 $514,943 $525,549 $315,781 $104,333
Average net
assets (000)... $1,901,972 $1,522,992 $1,042,028 $757,485 $583,016 $567,575 $530,415 $531,051 $253,230 $ 68,454
Ratios to
average net
assets:
Expenses,
including
distribution
fees++....... 1.75% 1.71% 1.74% 1.77% 1.89% 1.62% 1.61% 1.67% 1.52% 1.27%
Expenses,
excluding
distribution
fees++....... .75% .71% .74% .77% .89% .82% .86% .79% .86% 1.13%
Net investment
income....... .87% .91% 1.11% 1.56% 2.27% 1.66% 1.84% 1.03% 1.40% 1.85%
Portfolio
turnover....... 12% 21% 22% 19% 76% 57% 57% 90% 123% 106%
<FN>
- ------------
*On May 2, 1988, Prudential Mutual Fund Management, Inc. succeeded The
Prudential Insurance Company of America as investment adviser and since then
has acted as manager of the Fund.
+Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
++The Fund adopted a plan of distribution effective July 1, 1985 which was
amended and restated on January 22, 1990. Consequently, historical expenses
and ratios of expenses to average net assets for Class B shares are not
necessarily indicative of future expenses and related ratios for that Class.
See "How the Fund is Managed-- Distributor."
</TABLE>

6
<PAGE>

FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
(CLASS C SHARES)

The following financial highlights have been audited by Price Waterhouse
LLP, independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a Class C share of
common stock outstanding, total return, ratios to average net assets and other
supplemental data for the period indicated. The information is based on data
contained in the financial statements.

<TABLE>
<CAPTION>
CLASS C
-------------
AUGUST 1,
1994+
THROUGH
DECEMBER 31,
1994
-------------
<S> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period.... $ 14.02
------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------
Net investment income................... .09
Net realized and unrealized gain (loss)
on investment transactions............. (.10)
------
Total from investment operations...... (.01)
------
LESS DISTRIBUTIONS
- --------------
Dividends from net investment income.... (.12)
Distributions from net realized capital
gains.................................. (.65)
------
Total distributions................... (.77)
------
Net asset value, end of period.......... $ 13.24
------
------
TOTAL RETURN#:.......................... .01%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $ 3,160
Average net assets (000)................ $ 1,847
Ratios to average net assets:++
Expenses, including distribution
fees................................. 1.83%*
Expenses, excluding distribution
fees................................. .83%*
Net investment income................. .90%*
Portfolio turnover...................... 12%
<FN>
- -------------
*Annualized.
#Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than one year are not
annualized.
+Commencement of offering of Class C shares.
++Because of the event referred to in + and the timing of such, the ratios for
Class C shares are not necessarily comparable to those of Class A and Class B
shares and are not necessarily indicative of future ratios.
</TABLE>

7
<PAGE>
HOW THE FUND INVESTS

INVESTMENT OBJECTIVE AND POLICIES

THE FUND'S INVESTMENT OBJECTIVE IS LONG-TERM GROWTH OF CAPITAL. THE FUND WILL
SEEK TO ACHIEVE THIS OBJECTIVE BY INVESTING PRIMARILY IN COMMON STOCKS OF MAJOR,
ESTABLISHED CORPORATIONS WHICH, IN THE OPINION OF THE FUND'S INVESTMENT ADVISER,
ARE BELIEVED TO BE IN SOUND FINANCIAL CONDITION AND HAVE PROSPECTS OF PRICE
APPRECIATION GREATER THAN BROADLY BASED STOCK INDICES. THE FUND MAY ALSO INVEST
IN PREFERRED STOCKS AND BONDS, WHICH HAVE EITHER ATTACHED WARRANTS OR A
CONVERSION PRIVILEGE INTO COMMON STOCKS. AT TIMES WHEN ECONOMIC CONDITIONS OR
GENERAL LEVELS OF COMMON STOCK PRICES ARE SUCH THAT THE INVESTMENT ADVISER DEEMS
IT PRUDENT TO ADOPT A DEFENSIVE POSITION BY REDUCING OR CURTAILING INVESTMENTS
IN COMMON STOCKS, A LARGER PROPORTION OF THE FUND'S ASSETS THAN USUAL MAY BE
INVESTED IN PREFERRED STOCKS OR SHORT-TERM, INTERMEDIATE-TERM OR LONG-TERM DEBT
INSTRUMENTS (EITHER CONVERTIBLE OR NON-CONVERTIBLE). THE SHARES OF THE FUND ARE
SUBJECT TO THE RISKS OF COMMON STOCK INVESTMENT, AND THERE CAN BE NO ASSURANCE
THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. The Fund may invest up to
30% of its assets in foreign securities, which may involve additional risks.
Such investment risks include future adverse political and economic
developments, possible seizure or nationalization of the company in whose
securities the Fund has invested and possible establishment of exchange controls
or other foreign governmental laws that might adversely affect the value of the
Fund's investment or the payment of dividends.

THE FUND'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND, THEREFORE, MAY
NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE FUND'S
OUTSTANDING VOTING SECURITIES AS DEFINED IN THE INVESTMENT COMPANY ACT OF 1940,
AS AMENDED (THE INVESTMENT COMPANY ACT). FUND POLICIES THAT ARE NOT FUNDAMENTAL
MAY BE MODIFIED BY THE BOARD OF DIRECTORS.

HEDGING AND INCOME ENHANCEMENT STRATEGIES

THE FUND MAY ALSO ENGAGE IN VARIOUS PORTFOLIO STRATEGIES, INCLUDING UTILIZING
DERIVATIVES, TO REDUCE CERTAIN RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO
ENHANCE RETURN. THESE STRATEGIES INCLUDE (1) THE PURCHASE AND WRITING (I.E.,
SALE) OF PUT OPTIONS AND CALL OPTIONS ON EQUITY SECURITIES, (2) THE PURCHASE AND
SALE OF PUT AND CALL OPTIONS ON INDICES, (3) THE PURCHASE AND SALE OF EXCHANGE
TRADED STOCK INDEX FUTURES AND OPTIONS THEREON AND (4) THE PURCHASE AND SALE OF
OPTIONS ON FOREIGN CURRENCIES AND FUTURES CONTRACTS ON FOREIGN CURRENCIES AND
OPTIONS THEREON. THE FUND MAY ENGAGE IN THESE TRANSACTIONS ON SECURITIES OR
COMMODITIES EXCHANGES OR, IN THE CASE OF EQUITY, STOCK INDEX AND FOREIGN
CURRENCY OPTIONS, ALSO IN THE OVER-THE-COUNTER MARKET. THE FUND MAY ALSO
PURCHASE AND SELL FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund's
ability to use these strategies may be limited by market conditions, regulatory
limits and tax considerations and there can be no assurance that any of these
strategies will succeed. New financial products and risk management techniques
continue to be developed and the Fund may use these new investments and
techniques to the extent they are consistent with its investment objective and
policies. See "Investment Objective and Policies" in the Statement of Additional
Information.

OPTIONS TRANSACTIONS

OPTIONS ON EQUITY SECURITIES. THE FUND INTENDS TO PURCHASE AND WRITE (I.E.,
SELL) PUT AND CALL OPTIONS ON EQUITY SECURITIES THAT ARE TRADED ON SECURITIES
EXCHANGES, ON NASDAQ (NASDAQ OPTIONS) OR IN THE OVER-THE-COUNTER MARKET. A call
option is a short-term contract (having a duration of nine months or less)
pursuant to which the purchaser, in return for a premium paid, has the right to
buy the security underlying the option at a specified exercise price at any time
during the term of

8
<PAGE>
the option or, in the case of a European-style option, at the expiration of the
option. The writer of the call option receives a premium and has the obligation,
if the option is exercised, to deliver the underlying security against payment
of the exercise price. A put option is a similar contract which gives the
purchaser, who pays a premium, the right to sell the underlying security at a
specified price during the term of the option. The writer of the put, who
receives the premium, has the obligation to buy the underlying security upon
exercise at the exercise price. The Fund will purchase put options only when its
investment adviser perceives significant short-term risk, but substantial
long-term appreciation, in the underlying security.

THE FUND WILL WRITE CALL OPTIONS ONLY IF THEY ARE COVERED. A call option is
covered if the Fund holds on a share-for-share basis a call on the same security
as the call written by the Fund where the exercise price of the call held is
equal to or less than the exercise price of the call written or greater than the
exercise price of the call written if the difference is maintained by the Fund
in cash, Treasury bills or other high grade short-term obligations in a
segregated account with its custodian. The premium paid by the purchaser of an
option will reflect, among other things, the relationship of the exercise price
to the market price and volatility of the underlying security, the remaining
term of the option, supply and demand and interest rates.

If the writer of an option wishes to terminate the obligation, he or she may
effect a "closing purchase transaction." This is accomplished by buying an
option of the same series as the option previously written. The effect of the
purchase is that the writer's position will be cancelled by the clearing
corporation. However, a writer may not effect a closing purchase transaction
after he or she has been notified of the exercise of an option. Similarly, an
investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected. To secure the obligation to deliver the underlying security in the
case of a call option, the writer of an exchange-traded option or a NASDAQ
option is required to pledge for the benefit of the broker the underlying
security or other assets in accordance with the rules of The Options Clearing
Corporation (OCC), an institution created to interpose itself between buyers and
sellers of options. Technically, the OCC assumes the other side of every
purchase and sale transaction on an exchange and, by doing so, guarantees the
transaction.

In the case of OTC options, it is not possible to effect a closing transaction
in the same manner as exchange-traded options because a clearing corporation is
not interposed between the buyer and seller of the option. In order to terminate
the obligation represented by an OTC option, the Fund would need to agree to the
termination of the obligation represented by an OTC option with the counterparty
thereto. Any such cancellation, if agreed to, may require the Fund to pay a
premium to the counterparty. Alternatively, the Fund could write an OTC put
option in effect to close its position on an OTC call option or write a call
option to close its position on an OTC put option. However, the Fund would
remain exposed to each counterparty's credit risk on the call or put option
until such option is exercised or expires. There is no guarantee that the Fund
will be able to write put or call options, as the case may be, that will
effectively close an existing position.

The Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is more
than the premium paid to purchase the option; the Fund will realize a loss from
a closing transaction if the price of the transaction is more than the premium
received from writing the option or is less than the premium paid to purchase
the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.

THE FUND MAY ALSO PURCHASE A "PROTECTIVE PUT," I.E., A PUT OPTION ACQUIRED FOR
THE PURPOSE OF PROTECTING A PORTFOLIO SECURITY FROM A DECLINE IN MARKET VALUE.
In exchange for the premium paid for the put option, the Fund acquires the right
to sell the underlying security at the exercise price of the put regardless of
the extent to which the underlying security declines in value. The loss to the
Fund is limited to the premium paid for, and transaction costs in connection
with, the put plus the initial excess, if any, of the market price of the
underlying security over the exercise price. However, if the market price of the
security

9
<PAGE>
underlying the put rises, the profit the Fund realizes on the sale of the
security will be reduced by the premium paid for the put option less any amount
(net of transaction costs) for which the put may be sold. Similar principles
apply to the purchase of puts on stock indices, as described below.

OPTIONS ON STOCK INDICES. THE FUND MAY ALSO PURCHASE AND WRITE (I.E., SELL)
PUT AND CALL OPTIONS ON STOCK INDICES TRADED ON SECURITIES EXCHANGES, ON NASDAQ
OR IN THE OVER-THE-COUNTER MARKET. Options on stock indices are similar to
options on stock except that, rather than the right to take or make delivery of
stock at a specified price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of the stock index upon which the option is based is greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
option. This amount of cash is equal to such difference between the closing
price of the index and the exercise price of the option expressed in dollars
times a specified multiple (the multiplier). The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Unlike stock options, all settlements are in cash, and gain or loss depends on
price movements in the stock market generally (or in a particular industry or
segment of the market) rather than price movements in individual stocks.

The multiplier for an index option performs a function similar to the unit of
trading for a stock option. It determines the total dollar value per contract of
each point in the difference between the exercise price of an option and the
current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices may have
different multipliers.

Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular stock, whether the Fund will
realize a gain or loss on the purchase or sale of an option on an index depends
upon movements in the level of stock prices in the stock market generally or in
an industry or market segment rather than movements in the price of a particular
stock. Accordingly, successful use by the Fund of options on indices would be
subject to the investment adviser's ability to predict correctly movements in
the direction of the stock market generally or of a particular industry. This
requires different skills and techniques than predicting changes in the price of
individual stocks. The Fund's investment adviser currently uses these techniques
in conjunction with the management of other mutual funds.

Because exercises of index options are settled in cash, a call writer cannot
determine the amount of its settlement obligations in advance and, unlike call
writing on specific stocks, cannot provide in advance for, or cover, its
potential settlement obligations by acquiring and holding the underlying
securities. In addition, unless the Fund has other liquid assets which are
sufficient to satisfy the exercise of a call, the Fund would be required to
liquidate portfolio securities or borrow in order to satisfy the exercise.

THE FUND'S SUCCESSFUL USE OF OPTIONS ON INDICES DEPENDS UPON THE INVESTMENT
ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET AND IS SUBJECT TO
VARIOUS ADDITIONAL RISKS. The correlation between movements in the index and the
price of the securities being written against is imperfect and the risk from
imperfect correlation increases as the composition of the Fund's portfolio
diverges from the composition of the relevant index. Accordingly, a decrease in
the value of the securities being written against may not be wholly offset by a
gain on the exercise of a stock index put option held by the Fund. Likewise, if
a stock index call option written by the Fund is exercised, the Fund may incur a
loss on the transaction which is not offset, wholly or in part, by an increase
in the value of the securities being written against, which securities may,
depending on market circumstances, decline in value. For additional discussion
of risks associated with these transactions, see "Investment Objective and
Policies--Limitations on Purchase and Sale of Stock Options, Options on Indices
and Stock Index Futures--Risks of Options on Indices" in the Statement of
Additional Information.

OPTION POSITION LIMITS. Transactions by the Fund in options on securities and
on stock indices will be subject to limitations, if any, established by each of
the exchanges, boards of trade or other trading facilities (including NASDAQ)
governing the maximum number of options in each class which may be written or
purchased by a single investor or group of investors acting in concert,
regardless of whether the options are written on the same or different
exchanges, boards of trade or other trading facilities or are held or written in
one or more accounts or through one or more brokers. Thus, the number of options
which the Fund may

10
<PAGE>
write or purchase may be affected by options written or purchased by other
investment advisory clients of the Fund's investment adviser. An exchange, board
of trade or other trading facility may order the liquidation of positions found
to be in excess of these limits, and it may impose certain other sanctions.

OPTIONS ON FOREIGN CURRENCIES. THE FUND IS PERMITTED TO PURCHASE AND WRITE PUT
AND CALL OPTIONS ON FOREIGN CURRENCIES AND ON FUTURES CONTRACTS ON FOREIGN
CURRENCIES TRADED ON SECURITIES EXCHANGES OR BOARDS OF TRADE (FOREIGN AND
DOMESTIC) FOR HEDGING PURPOSES IN A MANNER SIMILAR TO THAT IN WHICH FORWARD
FOREIGN CURRENCY EXCHANGE CONTRACTS AND FUTURES CONTRACTS ON FOREIGN CURRENCIES
WILL BE EMPLOYED. Options on foreign currencies and on futures contracts on
foreign currencies are similar to options on stock, except that the Fund has the
right to take or make delivery of a specified amount of foreign currency, rather
than stock.

THE FUND MAY PURCHASE AND WRITE OPTIONS TO HEDGE THE FUND'S PORTFOLIO
SECURITIES DENOMINATED IN FOREIGN CURRENCIES. If there is a decline in the
dollar value of a foreign currency in which the Fund's portfolio securities are
denominated, the dollar value of such securities will decline even though the
foreign currency value remains the same. To hedge against the decline of the
foreign currency, the Fund may purchase put options on futures contracts on such
foreign currency. If the value of the foreign currency declines, the gain
realized on the put option would offset, in whole or in part, the adverse effect
such decline would have on the value of the portfolio securities. Alternatively,
the Fund may write a call option on a futures contract on the foreign currency.
If the value of the foreign currency declines, the option would not be exercised
and the decline in the value of the portfolio securities denominated in such
foreign currency would be offset in part by the premium the Fund received for
the option.

If, on the other hand, the investment advisor anticipates purchasing a foreign
security and also anticipates a rise in the value of such foreign currency
(thereby increasing the cost of such security), the Fund may purchase call
options on the foreign currency. The purchase of such options could offset, at
least partially, the effects of the adverse movements of the exchange rates.
Alternatively, the Fund could write a put option on the currency and, if the
exchange rates move as anticipated, the option would expire unexercised.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

THE FUND MAY ENTER INTO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS TO PROTECT
THE VALUE OF ITS PORTFOLIO AGAINST FUTURE CHANGES IN THE LEVEL OF CURRENCY
EXCHANGE RATES. A forward contract on foreign currency is an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days agreed upon by the parties from the date of the contract at a
price set on the date of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (typically large
commercial banks) and their customers. A forward contract generally has no
deposit requirements, and no commissions are charged for such trades.

The Fund may not use forward contracts to generate income, although the use of
such contracts may incidentally generate income. There is no limitation on the
value of forward contracts into which the Fund may enter. However, the Fund's
dealings in forward contracts will be limited to hedging involving either
specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of a forward contract with respect to specific receivables or
payables of the Fund generally arising in connection with the purchase or sale
of its portfolio securities and accruals of interest or dividends receivable and
Fund expenses. Position hedging is the sale of a foreign currency with respect
to portfolio security positions denominated or quoted in that currency. The Fund
will not speculate in forward contracts. The Fund may not position hedge with
respect to a particular currency for an amount greater than the aggregate market
value (determined at the time of making any sale of a forward contract) of
securities held in its portfolio denominated or quoted in, or currently
convertible into, such currency.

When the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, or when the Fund anticipates the receipt in a
foreign currency of dividends or interest payments on a security which it holds,
the Fund may desire to "lock in" the U.S. dollar price of the security or the
U.S. dollar equivalent of such dividend or interest payment, as the case may be.
By entering into a forward contract for a fixed amount of dollars for the
purchase or sale of the amount of foreign currency involved in the underlying
transaction, the Fund will be able to protect itself against possible loss
resulting from an adverse

11
<PAGE>

change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date on which the security is purchased
or sold, or on which the dividend or interest payment is declared, and the date
on which such payments are made or received. Additionally, when the investment
adviser believes that the currency of a particular foreign country may suffer a
substantial decline against the U.S. dollar, the Fund may enter into a forward
contract, for a fixed amount of dollars, to sell the amount of foreign currency
approximating the value of some or all of the portfolio securities of the Fund
denominated in such foreign currency. Requirements under the Internal Revenue
Code of 1986, as amended (the Internal Revenue Code) for qualification as a
regulated investment company may limit the Fund's ability to engage in
transactions in forward contracts. See "Dividends, Distributions and Taxes" in
the Statement of Additional Information.

FUTURES TRANSACTIONS

STOCK INDEX FUTURES. THE FUND MAY USE STOCK INDEX FUTURES TRADED ON A
COMMODITIES EXCHANGE OR BOARD OF TRADE FOR HEDGING, INCOME ENHANCEMENT AND RISK
REDUCTION PURPOSES.

A STOCK INDEX FUTURES CONTRACT IS AN AGREEMENT IN WHICH THE WRITER (OR SELLER)
OF THE CONTRACT AGREES TO DELIVER TO THE BUYER AN AMOUNT OF CASH EQUAL TO A
SPECIFIC DOLLAR AMOUNT TIMES THE DIFFERENCE BETWEEN THE VALUE OF A SPECIFIC
STOCK INDEX AT THE CLOSE OF THE LAST TRADING DAY OF THE CONTRACT AND THE PRICE
AT WHICH THE AGREEMENT IS MADE. No physical delivery of the underlying stocks in
the index is made. When the futures contract is entered into, each party
deposits with a broker or in a segregated custodial account approximately 5% of
the contract amount, called the "initial margin." Subsequent payments to and
from the broker, called "variation margin," will be made on a daily basis as the
price of the underlying stock index fluctuates, making the long and short
positions in the futures contracts more or less valuable, a process known as
"marked to market."

OPTIONS ON STOCK INDEX FUTURES. The Fund may also purchase and write options
on stock index futures for hedging, income enhancement and risk reduction
purposes. In the case of options on stock index futures, the holder of the
option pays a premium and receives the right, upon exercise of the option at a
specified price during the option period, to assume a position in a stock index
futures contract (a long position if the option is a call and short position if
the option is a put). If the option is exercised by the holder before the last
trading day during the option period, the option writer delivers the futures
position, as well as any balance in the writer's futures margin account, which
represents the amount by which the market price of the stock index futures
contract at exercise exceeds, in the case of a call, or is less than, in the
case of a put, the exercise price of the option on the stock index future. If it
is exercised on the last trading day, the option writer delivers to the option
holder cash in an amount equal to the difference between the option exercise
price and the closing level of the relevant index on the date the option
expires.

FUTURES CONTRACTS ON FOREIGN CURRENCIES. THE FUND IS PERMITTED TO BUY AND SELL
FUTURES CONTRACTS ON FOREIGN CURRENCIES (FUTURES CONTRACTS) SUCH AS THE EUROPEAN
CURRENCY UNIT, AND PURCHASE AND WRITE OPTIONS THEREON FOR HEDGING AND RISK
REDUCTION PURPOSES. A European Currency Unit is a basket of specified amounts of
the currencies of certain member states of the European Union, a Western
European economic cooperative organization including, INTER ALIA, France,
Germany, The Netherlands and the United Kingdom. The Fund will engage in
transactions in only those futures contracts and options thereon that are traded
on a commodities exchange or a board of trade. A "sale" of a futures contract on
foreign currency means the assumption of a contractual obligation to deliver the
specified amount of foreign currency at a specified price in a specified future
month. A "purchase" of a futures contract means the assumption of a contractual
obligation to acquire the currency called for by the contract at a specified
price in a specified future month. At the time a futures contract is purchased
or sold, the Fund must allocate cash or securities as a deposit payment (initial
margin). Thereafter, the futures contract is valued daily and the payment of
"variation margin" may be required, resulting in the Fund's paying or receiving
cash that reflects any decline or increase, respectively, in the contract's
value, a process known as "marked to market."

LIMITATIONS ON PURCHASES AND SALES OF FUTURES CONTRACTS AND OPTIONS THEREON.
UNDER THE REGULATIONS OF THE COMMODITY EXCHANGE ACT, AN INVESTMENT COMPANY
REGISTERED UNDER THE INVESTMENT COMPANY ACT ARE EXEMPT FROM THE DEFINITION OF
"COMMODITY POOL OPERATOR," SUBJECT TO COMPLIANCE WITH CERTAIN CONDITIONS. THE
EXEMPTION IS CONDITIONED UPON THE FUND'S PURCHASING AND SELLING FUTURES
CONTRACTS AND OPTIONS THEREON FOR BONA FIDE HEDGING TRANSACTIONS, EXCEPT THAT
THE FUND MAY PURCHASE AND SELL FUTURES CONTRACTS AND OPTIONS THEREON FOR ANY
OTHER PURPOSE

12
<PAGE>

TO THE EXTENT THAT THE AGGREGATE INITIAL MARGIN AND OPTION PREMIUMS DO NOT
EXCEED 5% OF THE LIQUIDATION VALUE OF THE FUND'S TOTAL ASSETS. THE FUND INTENDS
TO ENGAGE IN FUTURES TRANSACTIONS AND OPTIONS THEREON IN ACCORDANCE WITH THE
REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION (CFTC). THE FUND INTENDS
TO PURCHASE AND SELL STOCK INDEX FUTURES AND OPTIONS THEREON AS A HEDGE AGAINST
CHANGES, RESULTING FROM MARKET CONDITIONS, IN THE VALUE OF SECURITIES WHICH ARE
HELD IN THE FUND'S PORTFOLIO OR WHICH THE FUND INTENDS TO PURCHASE. THE FUND
INTENDS TO PURCHASE AND SELL FUTURES CONTRACTS ON FOREIGN CURRENCIES AND OPTIONS
THEREON AS A HEDGE AGAINST CHANGES IN THE VALUE OF THE CURRENCIES TO WHICH THE
FUND IS SUBJECT OR TO WHICH THE FUND EXPECTS TO BE SUBJECT IN CONNECTION WITH
FUTURE PURCHASES. THE FUND ALSO INTENDS TO PURCHASE AND SELL STOCK INDEX FUTURES
AND OPTIONS THEREON AND FUTURES CONTRACTS ON FOREIGN CURRENCIES AND OPTIONS
THEREON WHEN THEY ARE ECONOMICALLY APPROPRIATE FOR THE REDUCTION OF RISKS
INHERENT IN THE ONGOING MANAGEMENT OF THE FUND. THE FUND ALSO INTENDS TO
PURCHASE AND SELL STOCK INDEX FUTURES AND OPTIONS THEREON FOR INCOME
ENHANCEMENT.

THE FUND'S SUCCESSFUL USE OF FUTURES CONTRACTS AND OPTIONS THEREON DEPENDS
UPON THE INVESTMENT ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET AND
IS SUBJECT TO VARIOUS ADDITIONAL RISKS. The correlation between movements in the
price of a futures contract and the price of the securities being hedged is
imperfect and there is a risk that the value of the securities being hedged may
increase or decrease at a greater rate than the related futures contract,
resulting in losses to the Fund. The use of these instruments will hedge only
the currency risks associated with investments in foreign securities, not market
risks. Certain futures exchanges or boards of trade have established daily
limits on the amount that the price of a futures contract or option thereon may
vary, either up or down, from the previous day's settlement price. These daily
limits may restrict the Fund's ability to purchase or sell certain futures
contracts or options thereon on any particular day. In addition, if the Fund
purchases futures to hedge against market advances before it can invest in
common stock in an advantageous manner and the market declines, the Fund might
create a loss on the futures contract. In addition, the ability of the Fund to
close out a futures position or an option depends on a liquid secondary market.
There is no assurance that liquid secondary markets will exist for any
particular futures contract or option thereon at any particular time. See
"Investment Objective and Policies" in the Statement of Additional Information.

THE FUND'S ABILITY TO ENTER INTO FUTURES CONTRACTS AND OPTIONS THEREON MAY
ALSO BE LIMITED BY THE REQUIREMENTS OF THE INTERNAL REVENUE CODE FOR
QUALIFICATION AS A REGULATED INVESTMENT COMPANY.

RISKS OF HEDGING AND INCOME ENHANCEMENT STRATEGIES

PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS AND IN CURRENCY EXCHANGE
TRANSACTIONS INVOLVES INVESTMENT RISKS AND TRANSACTION COSTS TO WHICH THE FUND
WOULD NOT BE SUBJECT ABSENT THE USE OF THESE STRATEGIES. If the investment
adviser's prediction of movements in the direction of the securities, foreign
currency and interest rate markets are inaccurate, the adverse consequences to
the Fund may leave the Fund in a worse position than if such strategies were not
used. Risks inherent in the use of options, foreign currency and futures
contracts and options on futures contracts include (1) dependence on the
investment adviser's ability to predict correctly movements in the direction of
interest rates, securities prices and currency markets; (2) imperfect
correlation between the price of options and futures contracts and options
thereon and movements in the prices of the securities or currencies being
hedged; (3) the fact that skills needed to use these strategies are different
from those needed to select portfolio securities; (4) the possible absence of a
liquid secondary market for any particular instrument at any time; (5) the
possible need to defer closing out certain hedged positions to avoid adverse tax
consequences; and (6) the possible inability of the Fund to purchase or sell a
portfolio security at a time that otherwise would be favorable for it to do so,
or the possible need for the Fund to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with hedging transactions. See "Investment
Objective and Policies" and "Taxes" in the Statement of Additional Information.

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OTHER INVESTMENTS AND POLICIES

FOREIGN INVESTMENTS

The Fund may invest up to 30% of its total assets in securities of foreign
issuers. Investing in securities of foreign companies and countries involves
certain considerations and risks which are not typically associated with
investing in securities of domestic companies. Foreign companies are not
generally subject to uniform accounting, auditing and financial standards and
requirements comparable to those applicable to U.S. companies. There may also be
less government supervision and regulation of foreign securities exchanges,
brokers and public companies than exists in the United States. Dividends and
interest paid by foreign issuers may be subject to withholding and other foreign
taxes which may decrease the net return on such investments as compared to
dividends and interest paid to the Fund by domestic companies. There may be the
possibility of expropriations, confiscatory taxation, political, economic or
social instability or diplomatic developments which could affect assets of the
Fund held in foreign countries. In addition, a portfolio of foreign securities
may be adversely affected by fluctuations in the relative rates of exchange
between the currencies of different nations and by exchange control regulations.

There may be less publicly available information about foreign companies and
governments compared to reports and ratings published about U.S. companies.
Foreign securities markets have substantially less volume than, for example, the
New York Stock Exchange and securities of some foreign companies are less liquid
and more volatile than securities of comparable U.S companies. Brokerage
commissions and other transaction costs of foreign securities exchanges are
generally higher than in the United States.

REPURCHASE AGREEMENTS

The Fund may on occasion enter into repurchase agreements, whereby the seller
of a security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The repurchase date is usually quite short, possibly
overnight or a few days, although it may extend over a number of months. The
resale price is in excess of the purchase price, reflecting an agreed-upon rate
of return effective for the period of time the Fund's money is invested in the
repurchase agreement. The Fund's repurchase agreements will at all times be
fully collateralized in an amount at least equal to the purchase price,
including accrued interest earned on the underlying securities. The instruments
held as collateral are valued daily, and if the value of the instruments
declines, the Fund will require additional collateral. If the seller defaults
and the value of the collateral securing the repurchase agreement declines, the
Fund may incur a loss. The Fund participates in a joint repurchase account with
other investment companies managed by Prudential Mutual Fund Management, Inc.
pursuant to an order of the Securities and Exchange Commission (SEC). See
"Investment Objective and Policies--Repurchase Agreements" in the Statement of
Additional Information.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

The Fund may purchase or sell securities on a when-issued or delayed delivery
basis. When-issued or delayed delivery transactions arise when securities are
purchased or sold by the Fund with payment and delivery taking place as much as
a month or more in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. The Fund's Custodian will maintain, in a segregated account of the
Fund, cash, U.S. Government securities or other liquid high-grade debt
obligations having a value equal to or greater than the Fund's purchase
commitments; the Custodian will likewise segregate securities sold on a delayed
delivery basis. The securities so purchased are subject to market fluctuation
and no interest accrues to the purchaser during the period between purchase and
settlement. At the time of delivery of the securities the value may be more or
less than the purchase price and an increase in the percentage of the Fund's
assets committed to the purchase of securities on a when-issued or delayed
delivery basis may increase the volatility of the Fund's net asset value.

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BORROWING AND SECURITIES LENDING

The Fund may borrow an amount equal to no more than 20% of the value of its
total assets (calculated when the loan is made) for temporary, extraordinary or
emergency purposes or for the clearance of transactions. The Fund may pledge up
to 20% of its total assets to secure these borrowings.

The Fund does not presently intend to lend securities, except to the extent
that the entry into repurchase agreements may be considered securities lending.
See "Investment Objective and Policies--Lending of Portfolio Securities" in the
Statement of Additional Information.

SHORT SALES AGAINST-THE-BOX

The Fund may make short sales of securities or maintain a short position,
provided that at all times when a short position is open the Fund owns an equal
amount of such securities or securities convertible into or exchangeable for,
without payment of any further consideration, an equal amount of the securities
of the same issuer as the securities sold short (a short sale against-the-box),
and that not more than 25% of the Fund's net assets (determined at the time of
the short sale) may be subject to such sales. Short sales will be made primarily
to defer realization of gain or loss for federal tax purposes; a gain or loss in
the Fund's long position will be offset by a gain or loss in its short position.
The Fund does not intend to have more than 5% of its net assets (determined at
the time of the short sale) subject to short sales against-the-box during the
coming year.

ILLIQUID SECURITIES

The Fund may invest up to 10% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities markets
either within or outside of the United States. Restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933, as amended
(the Securities Act), and privately placed commercial paper that have a readily
available market are not considered illiquid for purposes of this limitation.
The investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors. Repurchase agreements subject
to demand are deemed to have a maturity equal to the applicable notice period.

The staff of the SEC has taken the position that purchased over-the-counter
options and the assets used as "cover" for written over-the-counter options are
illiquid securities unless the Fund and the counterparty have provided for the
Fund, at the Fund's election, to unwind the OTC option. The exercise of such an
option ordinarily would involve the payment by the Fund of an amount designed to
reflect the counterparty's economic loss from an early termination, but does
allow the Fund to treat the assets used as "cover" as "liquid."

INVESTMENT RESTRICTIONS

The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.

HOW THE FUND IS MANAGED

THE FUND HAS A BOARD OF DIRECTORS WHICH, IN ADDITION TO OVERSEEING THE ACTIONS
OF THE FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, AS SET FORTH BELOW, DECIDES
UPON MATTERS OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND SUPERVISES THE
DAILY BUSINESS OPERATIONS OF THE FUND. THE FUND'S SUBADVISER FURNISHES DAILY
INVESTMENT ADVISORY SERVICES.

For the fiscal year ended December 31, 1994, the Fund's total expenses as a
percentage of average net assets were 1.00%, 1.75% and 1.83% (annualized) of the
Fund's Class A, Class B and Class C shares, respectively. See "Financial
Highlights."

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<PAGE>
MANAGER

PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. (PMF OR THE MANAGER), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS THE MANAGER OF THE FUND AND IS COMPENSATED
FOR ITS SERVICES AT AN ANNUAL RATE OF .50 OF 1% OF THE AVERAGE DAILY NET ASSETS
OF THE FUND UP TO AND INCLUDING $500 MILLION, .475 OF 1% OF THE NEXT $500
MILLION OF THE AVERAGE DAILY NET ASSETS AND .45 OF 1% OF THE AVERAGE DAILY NET
ASSETS IN EXCESS OF $1 BILLION. PMF was incorporated in May 1987 under the laws
of the State of Delaware. For the fiscal year ended December 31, 1994, the Fund
paid management fees to PMF of .47% of the Fund's average net assets. See
"Manager" in the Statement of Additional Information.

As of January 31, 1995, PMF served as the manager to 39 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 30 closed-end investment companies with aggregate assets of
approximately $45 billion.

UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PMF MANAGES THE INVESTMENT
OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE FUND'S CORPORATE AFFAIRS. See
"Manager" in the Statement of Additional Information.

UNDER THE SUBADVISORY AGREEMENT BETWEEN PMF AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC OR THE SUBADVISER), PIC FURNISHES INVESTMENT ADVISORY SERVICES
IN CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS REIMBURSED BY PMF FOR ITS
REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES. Under the
Management Agreement, PMF continues to have responsibility for all investment
advisory services and supervises PIC's performance of such services.

The current portfolio manager of the Fund is Thomas R. Jackson, a Managing
Director of Prudential Equity Management Associates, a unit of PIC, the Fund's
Subadviser. Mr. Jackson has responsibility for daily portfolio management and
securities selection for the Fund. Mr. Jackson also serves as the portfolio
manager of the Common Stock Portfolio of the Prudential Series Fund, which is
one of the investment options in a Prudential variable life and annuity product.
Mr. Jackson joined PIC in 1990 and has over twenty-five years of professional
equity investment management experience. He was formerly co-chief investment
officer of Red Oak Advisers and Century Capital Associates, private money
management firms, where he managed pension and other accounts for institutions
and individuals. He was also with The Dreyfus Corporation where he managed and
served as president of the Dreyfus Fund. Mr. Jackson also managed an equity
pension investment group at Chase Manhattan Bank.

Mr. Jackson primarily utilizes a "value" investing style in managing the Fund.
Value investing is a disciplined approach which attempts to identify strong
companies selling at a discount from their perceived true worth. Mr. Jackson
selects stocks for the Fund's portfolio at prices which in his view are
temporarily low relative to the company's earnings, assets, cash flow and
dividends.

PMF and PIC are wholly-owned subsidiaries of The Prudential Insurance Company
of America (Prudential), a major diversified insurance and financial services
company.

DISTRIBUTOR

PRUDENTIAL MUTUAL FUND DISTRIBUTORS, INC. (PMFD), ONE SEAPORT PLAZA, NEW YORK,
NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE OF
DELAWARE AND SERVES AS THE DISTRIBUTOR OF THE CLASS A SHARES OF THE FUND. IT IS
A WHOLLY-OWNED SUBSIDIARY OF PMF.

PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR PSI), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE LAWS OF
THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR OF THE CLASS B AND CLASS C
SHARES OF THE FUND. IT IS AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF PRUDENTIAL.

UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND SEPARATE DISTRIBUTION AGREEMENTS
(THE DISTRIBUTION AGREEMENTS), PMFD AND PRUDENTIAL SECURITIES (COLLECTIVELY, THE
DISTRIBUTOR)

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<PAGE>

INCUR THE EXPENSES OF DISTRIBUTING THE FUND'S CLASS A, CLASS B AND CLASS C
SHARES. These expenses include commissions and account servicing fees paid to,
or on account of, financial advisers of Prudential Securities and
representatives of Pruco Securities Corporation (Prusec), an affiliated
broker-dealer, commissions and account servicing fees paid to, or on account of,
other broker-dealers or financial institutions (other than national banks) which
have entered into agreements with the Distributor, advertising expenses, the
cost of printing and mailing prospectuses to potential investors and indirect
and overhead costs of Prudential Securities and Prusec associated with the sale
of Fund shares, including lease, utility, communications and sales promotion
expenses. The State of Texas requires that shares of the Fund may be sold in
that state only by dealers or other financial institutions which are registered
there as broker-dealers.

Under the Plans, the Fund is obligated to pay distribution and/or service fees
to the Distributor as compensation for its distribution and service activities,
not as reimbursement for specific expenses incurred. If the Distributor's
expenses exceed its distribution and service fees, the Fund will not be
obligated to pay any additional expenses. If the Distributor's expenses are less
than such distribution and service fees, it will retain its full fees and
realize a profit.

UNDER THE CLASS A PLAN, THE FUND MAY PAY PMFD FOR ITS DISTRIBUTION-RELATED
ACTIVITIES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE OF UP TO .30 OF 1%
OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES. The Class A Plan provides
that (i) up to .25 of 1% of the average daily net assets of the Class A shares
may be used to pay for personal service and/ or the maintenance of shareholder
accounts (service fee) and (ii) total distribution fees (including the service
fee of .25 of 1%) may not exceed .30 of 1% of the average daily net assets of
the Class A shares. PMFD has agreed to limit its distribution-related fees
payable under the Class A Plan to .25 of 1% of the average daily net assets of
the Class A shares for the fiscal year ending December 31, 1995.

For the fiscal year ended December 31, 1994, PMFD received payments of
$636,490 under the Class A Plan. This amount was primarily expended for payment
of account servicing fees to financial advisers and other persons who sell Class
A shares. For the fiscal year ended December 31, 1994, PMFD also received
approximately $1,712,900 in initial sales charges.

UNDER THE CLASS B AND CLASS C PLANS, THE FUND PAYS PRUDENTIAL SECURITIES FOR
ITS DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND CLASS C SHARES
AT AN ANNUAL RATE OF 1% OF THE AVERAGE DAILY NET ASSETS OF EACH OF THE CLASS B
AND CLASS C SHARES. The Class B and Class C Plans provide for the payment to
Prudential Securities of (i) an asset-based sales charge of .75 of 1% of the
average daily net assets of each of the Class B and Class C shares and (ii) a
service fee of .25 of 1% of the average daily net assets of each of the Class B
and Class C shares. The service fee is used to pay for personal service and/or
the maintenance of shareholder accounts. Prudential Securities also receives
contingent deferred sales charges from certain redeeming shareholders. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales Charges."

For the fiscal year ended December 31, 1994, Prudential Securities incurred
distribution expenses of approximately $12,148,000 under the Class B Plan and
received $19,019,918 from the Fund under the Class B Plan. In addition,
Prudential Securities received approximately $3,369,000 in contingent deferred
sales charges from redemptions of Class B shares during the year.

For the period August 1, 1994 (commencement of operations of Class C shares)
through December 31, 1994, Prudential Securities incurred distribution expenses
of approximately $26,000 under the Class C Plan and received $7,642 from the
Fund under the Class C Plan. In addition, Prudential Securities received
approximately $1,000 in contingent deferred sales charges from redemptions of
Class C shares during this period.

For the fiscal year ended December 31, 1994, the Fund paid distribution
expenses of .25%, 1.00% and 1.00% (annualized) of the average daily net assets
of the Class A, Class B and Class C shares, respectively. The Fund records all
payments made under the Plans as expenses in the calculation of net investment
income. Prior to August 1, 1994, the Class A and Class B Plans operated as
"reimbursement type" plans and, in the case of Class B, provided for the
reimbursement of distribution expenses incurred in current and prior years. See
"Distributor" in the Statement of Additional Information.

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<PAGE>
Distribution expenses attributable to the sale of shares of the Fund will be
allocated to each class based upon the ratio of sales of each class to the sales
of all shares of the Fund other than expenses allocable to a particular class.
The distribution fee and sales charge of one class will not be used to subsidize
the sale of another class.

Each Plan provides that it shall continue in effect from year to year provided
that a majority of the Board of Directors of the Fund, including a majority of
the Directors who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of the Plan or any agreement related to the Plan (the Rule 12b-1
Directors), vote annually to continue the Plan. Each Plan may be terminated at
any time by vote of a majority of the Rule 12b-1 Directors or of a majority of
the outstanding shares of the applicable class of the Fund. The Fund will not be
obligated to pay expenses incurred under any Plan if it is terminated or not
continued.

In addition to distribution and service fees paid by the Fund under the Class
A, Class B and Class C Plans, the Manager (or one of its affiliates) may make
payments out of its own resources to dealers and other persons who distribute
shares of the Fund. Such payments may be calculated by reference to the net
asset value of shares sold by such persons or otherwise.

The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. (the NASD), governing maximum sales charges. See
"Distributor" in the Statement of Additional Information.

On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner, who joined the settlement on January 18, 1994) and the NASD to
resolve allegations that from 1980 through 1990 PSI sold certain limited
partnership interests in violation of securities laws to persons for whom such
securities were not suitable and misrepresented the safety, potential returns
and liquidity of these investments. Without admitting or denying the allegations
asserted against it, PSI consented to the entry of an SEC Administrative Order
which stated that PSI's conduct violated the federal securities laws, directed
PSI to cease and desist from violating the federal securities laws, pay civil
penalties, and adopt certain remedial measures to address the violations.

Pursuant to the terms of the SEC settlement, PSI agreed to the imposition of a
$10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purpose of the settlement fund. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action.

In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the signing
of the agreement, provided that PSI complies with the terms of the agreement.
If, upon completion of the three year period, PSI has complied with the terms of
the agreement, no prosecution will be instituted by the United States for the
offenses charged in the complaint. If, on the other hand, during the course of
the three year period, PSI violates the terms of the agreement, the U.S.
Attorney can then elect to pursue these charges. Under the terms of the
agreement, PSI agreed, among other things, to pay an additional $330,000,000
into the fund established by the SEC to pay restitution to investors who
purchased certain PSI limited partnership interests.

For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling 1-800-225-1852.

The Fund is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein, and
the Fund's assets, which are held by State Street Bank and Trust Company, an
independent custodian, are separate and distinct from PSI.

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<PAGE>
PORTFOLIO TRANSACTIONS

Prudential Securities may act as a broker or futures commission merchant for
the Fund, provided that the commissions, fees or other remuneration it receives
are fair and reasonable. See "Portfolio Transactions and Brokerage" in the
Statement of Additional Information.

CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

State Street Bank and Trust Company (State Street or the Custodian), One
Heritage Drive, North Quincy, Massachusetts 02171, serves as Custodian for the
Fund's portfolio securities and cash and, in that capacity, maintains certain
financial and accounting books and records pursuant to an agreement with the
Fund. Its mailing address is P.O. Box 1713, Boston, Massachusetts 02105.

Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent), Raritan
Plaza One, Edison, New Jersey 08837, serves as Transfer Agent and Dividend
Disbursing Agent and in those capacities maintains certain books and records for
the Fund. PMFS is a wholly-owned subsidiary of PMF. Its mailing address is P.O.
Box 15005, New Brunswick, New Jersey 08906-5005.

HOW THE FUND VALUES ITS SHARES

THE FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. FOR
VALUATION PURPOSES, QUOTATIONS OF FOREIGN SECURITIES IN A FOREIGN CURRENCY ARE
CONVERTED TO U.S. DOLLAR EQUIVALENTS. THE BOARD OF DIRECTORS HAS FIXED THE
SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE FUND'S NET ASSET VALUE TO BE AS
OF 4:15 P.M., NEW YORK TIME.

Portfolio securities are valued based on market quotations or, if not readily
available, at fair value as determined in good faith under procedures
established by the Fund's Board of Directors. See "Net Asset Value" in the
Statement of Additional Information.

The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem shares have been received by the Fund or days on which changes in the
value of the Fund's portfolio securities do not materially affect the NAV. The
New York Stock Exchange is closed on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.

Although the legal rights of each class of shares are substantially identical,
the different expenses borne by each class will result in different NAVs and
dividends. The NAV of Class B and Class C shares will generally be lower than
the NAV of Class A shares as a result of the larger distribution-related fee to
which Class B and Class C shares are subject. It is expected, however, that the
NAV per share of the three classes will tend to converge immediately after the
recording of dividends, if any, which will differ by approximately the amount of
the distribution-related expense accrual differential among the classes.

HOW THE FUND CALCULATES PERFORMANCE

FROM TIME TO TIME THE FUND MAY ADVERTISE ITS "TOTAL RETURN" (INCLUDING
"AVERAGE ANNUAL" TOTAL RETURN AND "AGGREGATE" TOTAL RETURN) AND YIELD IN
ADVERTISEMENTS OR SALES LITERATURE. TOTAL RETURN AND YIELD ARE CALCULATED
SEPARATELY FOR CLASS A, CLASS B AND CLASS C SHARES. THESE FIGURES ARE BASED ON
HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The
"total return" shows how much an investment in the Fund would have increased
(decreased)

19
<PAGE>

over a specified period of time (I.E., one, five or ten years or since inception
of the Fund) assuming that all distributions and dividends by the Fund were
reinvested on the reinvestment dates during the period and less all recurring
fees. The "aggregate" total return reflects actual performance over a stated
period of time. "Average annual" total return is a hypothetical rate of return
that, if achieved annually, would have produced the same aggregate total return
if performance had been constant over the entire period. "Average annual" total
return smooths out variations in performance and takes into account any
applicable initial or contingent deferred sales charges. Neither "average
annual" total return nor "aggregate" total return takes into account any federal
or state income taxes which may be payable upon redemption. The "yield" refers
to the income generated by an investment in the Fund over a one-month or 30-day
period. This income is then "annualized"; that is, the amount of income
generated by the investment during that 30-day period is assumed to be generated
each 30-day period for twelve periods and is shown as a percentage of the
investment. The income earned on the investment is also assumed to be reinvested
at the end of the sixth 30-day period. The Fund also may include comparative
performance information in advertising or marketing the Fund's shares. Such
performance information may include data from Lipper Analytical Services, Inc.,
Morningstar Publications, Inc., other industry publications, business
periodicals and market indices. See "Performance Information" in the Statement
of Additional Information. The Fund will include performance data for each class
of shares of the Fund in any advertisement or information including performance
data of the Fund. Further performance information is contained in the Fund's
annual and semi-annual reports to shareholders, which may be obtained without
charge. See "Shareholder Guide--Shareholder Services-- Reports to Shareholders."

TAXES, DIVIDENDS AND DISTRIBUTIONS

TAXATION OF THE FUND

THE FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A REGULATED
INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE FUND WILL
NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME AND CAPITAL
GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. See "Dividends,
Distributions and Taxes" in the Statement of Additional Information.

TAXATION OF SHAREHOLDERS

Any dividends out of net investment income, together with distributions of net
short-term gains (I.E., the excess of net short-term capital gains over net
long-term capital losses) distributed to shareholders, will be taxable as
ordinary income to the shareholder whether or not reinvested. Any net capital
gains (I.E., the excess of net long-term capital gains over net short-term
capital losses) distributed to shareholders will be taxable as long-term capital
gains to the shareholders, whether or not reinvested and regardless of the
length of time a shareholder has owned his or her shares. The maximum long-term
capital gains rate for individuals is 28%. The maximum long-term capital gains
rate for corporate shareholders is currently the same as the maximum tax rate
for ordinary income.

Dividends paid by the Fund are eligible for the 70% dividends-received
deduction for corporate shareholders, to the extent that the Fund's income is
derived from certain dividends received from domestic corporations. Capital gain
distributions are not eligible for the 70% dividends-received deduction.

Any gain or loss realized upon a sale or redemption of Fund shares by a
shareholder who is not a dealer in securities generally will be treated as
long-term capital gain or loss if the shares have been held for more than one
year, and otherwise as short-term capital gain or loss. Any such loss, however,
although otherwise treated as a short-term capital loss, will be treated as
long-term capital loss to the extent of any capital gain distributions received
by the shareholder on such shares that are held for six months or less.

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<PAGE>

The Fund has obtained opinions of counsel to the effect that neither (i) the
conversion of Class B shares into Class A shares nor (ii) the exchange of Class
B or Class C shares for Class A shares constitutes a taxable event for federal
income tax purposes. However, such opinions are not binding on the Internal
Revenue Service.

Shareholders are advised to consult their own tax advisers regarding specific
questions as to federal, state or local taxes. See "Dividends, Distributions and
Taxes" in the Statement of Additional Information.

WITHHOLDING TAXES

Under the Internal Revenue Code, the Fund generally is required to withhold
and remit to the U.S. Treasury 31% of dividends, capital gain distributions and
redemption proceeds on the accounts of those shareholders who fail to furnish
their tax identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of
certain foreign shareholders) or who are otherwise subject to backup
withholding. Dividends of net investment income and net short-term capital gains
to a foreign shareholder will generally be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate).

DIVIDENDS AND DISTRIBUTIONS

THE FUND EXPECTS TO PAY DIVIDENDS OUT OF NET INVESTMENT INCOME, IF ANY,
SEMI-ANNUALLY AND MAKE DISTRIBUTIONS AT LEAST ANNUALLY OF ANY CAPITAL GAINS IN
EXCESS OF CAPITAL LOSSES. Dividends paid by the Fund with respect to each class
of shares, to the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day and will be in the same amount except
that each class will bear its own distribution charges, generally resulting in
lower dividends for Class B and Class C shares. Distributions of net capital
gains, if any, will be paid in the same amount for each class of shares. See
"How the Fund Values its Shares."

DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES BASED ON
THE NAV OF EACH CLASS ON THE RECORD DATE, OR SUCH OTHER DATE AS THE BOARD OF
DIRECTORS MAY DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN
FIVE BUSINESS DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND
DISTRIBUTIONS IN CASH. Such election should be submitted to Prudential Mutual
Fund Services, Inc., Attention: Account Maintenance, P.O. Box 15015, New
Brunswick, New Jersey 08906-5015. If you hold shares through Prudential
Securities, you should contact your financial adviser to elect to receive
dividends and distributions in cash. The Fund will notify each shareholder after
the close of the Fund's taxable year of both the dollar amount and the taxable
status of that year's dividends and distributions on a per share basis.

WHEN THE FUND GOES "EX-DIVIDEND," THE NAV OF EACH CLASS IS REDUCED BY THE
AMOUNT OF THE DIVIDEND OR DISTRIBUTION ATTRIBUTABLE TO EACH CLASS. IF YOU BUY
SHARES JUST PRIOR TO THE EX-DIVIDEND DATE (WHICH GENERALLY OCCURS FOUR BUSINESS
DAYS PRIOR TO THE RECORD DATE), THE PRICE YOU PAY WILL INCLUDE THE DIVIDEND OR
DISTRIBUTION AND A PORTION OF YOUR INVESTMENT WILL BE RETURNED TO YOU AS A
TAXABLE DIVIDEND OR DISTRIBUTION. YOU SHOULD, THEREFORE, CONSIDER THE TIMING OF
DIVIDENDS AND DISTRIBUTIONS WHEN MAKING YOUR PURCHASES.

21
<PAGE>
GENERAL INFORMATION

DESCRIPTION OF COMMON STOCK

THE FUND WAS INCORPORATED IN MARYLAND ON OCTOBER 9, 1981. THE FUND IS
AUTHORIZED TO ISSUE 750 MILLION SHARES OF COMMON STOCK, $.01 PAR VALUE PER
SHARE, DIVIDED INTO THREE CLASSES, DESIGNATED CLASS A, CLASS B AND CLASS C
COMMON STOCK, EACH OF WHICH CONSISTS OF 250 MILLION AUTHORIZED SHARES. Each
class of common stock represents an interest in the same assets of the Fund and
is identical in all respects except that (i) each class bears different
distribution expenses, (ii) each class has exclusive voting rights with respect
to its distribution and service plan (except that the Fund has agreed with the
SEC in connection with the offering of a conversion feature on Class B shares to
submit any amendment of the Class A Plan to both Class A and Class B
shareholders), (iii) each class has a different exchange privilege and (iv) only
Class B shares have a conversion feature. See "How the Fund is
Managed--Distributor." The Fund has received an order from the SEC permitting
the issuance and sale of multiple classes of common stock. Currently, the Fund
is offering three classes designated Class A, Class B and Class C shares. In
accordance with the Fund's Articles of Incorporation, the Board of Directors may
authorize the creation of additional series of common stock and classes within
such series, with such preferences, privileges, limitations and voting and
dividend rights as the Board of Directors may determine.

The Board of Directors may increase or decrease the number of authorized
shares without the approval of shareholders. Shares of the Fund, when issued,
are fully paid, nonassessable, fully transferable and redeemable at the option
of the holder. Shares are also redeemable at the option of the Fund under
certain circumstances as described under "Shareholder Guide--How to Sell Your
Shares." Each share of each class of common stock is equal as to earnings,
assets and voting privileges, except as noted above, and each class bears the
expenses related to the distribution of its shares. Except for the conversion
feature applicable to the Class B shares, there are no conversion, preemptive or
other subscription rights. In the event of liquidation, each share of common
stock of the Fund is entitled to its portion of all of the Fund's assets after
all debt and expenses of the Fund have been paid. Since Class B and Class C
shares generally bear higher distribution expenses than Class A shares, the
liquidation proceeds to shareholders of those classes are likely to be lower
than to Class A shareholders. The Fund's shares do not have cumulative voting
rights for the election of Directors.

THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF DIRECTORS IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OF THE
FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE OR
MORE DIRECTORS OR TO TRANSACT ANY OTHER BUSINESS.

ADDITIONAL INFORMATION

This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information set
forth in the Registration Statement filed by the Fund with the SEC under the
Securities Act. Copies of the Registration Statement may be obtained at a
reasonable charge from the SEC or may be examined, without charge, at the office
of the SEC in Washington, D.C.

22
<PAGE>
SHAREHOLDER GUIDE

HOW TO BUY SHARES OF THE FUND

YOU MAY PURCHASE SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, PRUSEC OR
DIRECTLY FROM THE FUND, THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND
SERVICES, INC. (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES,
P.O. BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. The minimum initial
investment for Class A and Class B shares is $1,000 per class and $5,000 for
Class C shares, except that the minimum initial investment for Class C shares
may be waived from time to time. The minimum subsequent investment is $100 for
all classes. All minimum investment requirements are waived for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors. For purchases made through the Automatic Savings Accumulation Plan, the
minimum initial and subsequent investment requirement is $50. The minimum
initial investment requirement is waived for purchases of Class A shares
effected through an exchange of Class B shares of The BlackRock Government
Income Trust. All minimum investment requirements are waived for purchases made
in connection with the "Best Minds" program sponsored by the Distributor
pursuant to which the total dollar amount of a client's investment in the
program will be allocated equally among shares of the Fund and other Prudential
Mutual Funds. For more information about this program, you should contact your
Prudential Securities financial adviser or Prusec representative. See
"Shareholder Services" below.

THE PURCHASE PRICE IS THE NAV NEXT DETERMINED FOLLOWING RECEIPT OF AN ORDER BY
THE TRANSFER AGENT OR PRUDENTIAL SECURITIES PLUS A SALES CHARGE WHICH, AT YOUR
OPTION, MAY BE IMPOSED EITHER (I) AT THE TIME OF PURCHASE (CLASS A SHARES) OR
(II) ON A DEFERRED BASIS (CLASS B OR CLASS C SHARES). SEE "ALTERNATIVE PURCHASE
PLAN" BELOW. SEE ALSO "HOW THE FUND VALUES ITS SHARES."

Application forms can be obtained from PMFS, Prudential Securities or Prusec.
If a stock certificate is desired, it must be requested in writing for each
transaction. Certificates are issued only for full shares. Shareholders who hold
their shares through Prudential Securities will not receive stock certificates.

The Fund reserves the right to reject any purchase order (including an
exchange into the Fund) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares" below.

Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the fifth business day following the investment.

Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.

PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must first telephone PMFS at (800) 225-1852 (toll-free) to receive an account
number. The following information will be requested: your name, address, tax
identification number, class election, dividend distribution election, amount
being wired and wiring bank. Instructions should then be given by you to your
bank to transfer funds by wire to State Street Bank and Trust Company, Boston,
Massachusetts, Custody and Shareholder Services Division, Attention: Prudential
Equity Fund, Inc., specifying on the wire the account number assigned by PMFS
and your name and identifying the sales charge alternative (Class A, Class B or
Class C shares).

If you arrange for receipt by State Street of Federal Funds prior to 4:15
P.M., New York time, on a business day, you may purchase shares of the Fund as
of that day.

23
<PAGE>

In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Equity Fund,
Inc., Class A, Class B or Class C shares and your name and individual account
number. It is not necessary to call PMFS to make subsequent purchase orders
utilizing Federal Funds. The minimum amount which may be invested by wire is
$1,000.

ALTERNATIVE PURCHASE PLAN

THE FUND OFFERS THREE CLASSES OF SHARES (CLASS A, CLASS B AND CLASS C SHARES)
WHICH ALLOWS YOU TO CHOOSE THE MOST BENEFICIAL SALES CHARGE STRUCTURE FOR YOUR
INDIVIDUAL CIRCUMSTANCES GIVEN THE AMOUNT OF THE PURCHASE, THE LENGTH OF TIME
YOU EXPECT TO HOLD THE SHARES AND OTHER RELEVANT CIRCUMSTANCES (ALTERNATIVE
PURCHASE PLAN).

<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
--------------------------------- --------------------------------- ---------------------------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge of .30 of 1% (Currently being Initial sales charge waived or
5% of the public offering price charged at a rate of .25 of 1%) reduced for certain purchases
CLASS B Maximum contingent deferred sales 1% Shares convert to Class A shares
charge or CDSC of 5% of the approximately seven years after
lesser of the amount invested or purchase
the redemption proceeds; declines
to zero after six years
CLASS C Maximum CDSC of 1% of the lesser 1% Shares do not convert to another
of the amount invested or the class
redemption proceeds on
redemptions made within one year
of purchase
</TABLE>

The three classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan,
(ii) each class has exclusive voting rights with respect to its Plan (except as
noted under the heading "General Information--Description of Common Stock") and
(iii) only Class B shares have a conversion feature. The three classes also have
separate exchange privileges. See "How to Exchange Your Shares" below. The
income attributable to each class and the dividends payable on the shares of
each class will be reduced by the amount of the distribution fee of each class.
Class B and Class C shares bear the expenses of a higher distribution fee which
will generally cause them to have higher expense ratios and to pay lower
dividends than the Class A shares.

Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B and Class C shares
and will generally receive more compensation initially for selling Class A and
Class B shares than for selling Class C shares.

IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER THINGS,
(1) the length of time you expect to hold your investment, (2) the amount of any
applicable sales charge (whether imposed at the time of purchase or redemption)
and distribution-related fees, as noted above, (3) whether you qualify for any
reduction or waiver of any applicable sales charge, (4) the various exchange
privileges among the different classes of shares (see "How to Exchange Your
Shares" below) and (5) the fact that Class B shares automatically convert to
Class A shares approximately seven years after purchase (see "Conversion
Feature--Class B Shares" below).

24
<PAGE>
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund:

If you intend to hold your investment in the Fund for less than 7 years and do
not qualify for a reduced sales charge on Class A shares, since Class A shares
are subject to a maximum initial sales charge of 5% and Class B shares are
subject to a CDSC of 5% which declines to zero over a 6 year period, you should
consider purchasing Class C shares over either Class A or Class B shares.

If you intend to hold your investment for 7 years or more and do not qualify
for a reduced sales charge on Class A shares, since Class B shares convert to
Class A shares approximately 7 years after purchase and because all of your
money would be invested initially in the case of Class B shares, you should
consider purchasing Class B shares over either Class A or Class C shares.

If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have your entire purchase price
invested initially because the sales charge on Class A shares is deducted at the
time of purchase.

If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and Class C shares for the
higher cumulative annual distribution-related fees on those shares to exceed the
initial sales charge plus cumulative annual distribution-related fees on Class A
shares. This does not take into account the time value of money, which further
reduces the impact of the higher Class B or Class C distribution-related fees on
the investment, fluctuations in net asset value, the effect of the return on the
investment over this period of time or redemptions during which the CDSC is
applicable.

ALL PURCHASES OF $1 MILLION OR MORE, EITHER AS PART OF A SINGLE INVESTMENT OR
UNDER RIGHTS OF ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A SHARES.
SEE "REDUCTION AND WAIVER OF INITIAL SALES CHARGES" BELOW.

CLASS A SHARES

The offering price of Class A shares for investors choosing the initial sales
charge alternative is the next determined NAV plus a sales charge (expressed as
a percentage of the offering price and of the amount invested) as shown in the
following table:

<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ------------------------- ----------------- ----------------- -------------------
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.75%
$25,000 to $49,999 4.50% 4.71% 4.25%
$50,000 to $99,999 4.00% 4.17% 3.75%
$100,000 to $249,999 3.25% 3.36% 3.00%
$250,000 to $499,999 2.50% 2.56% 2.40%
$500,000 to $999,999 2.00% 2.04% 1.90%
$1,000,000 and above None None None
</TABLE>

Selling dealers may be deemed to be underwriters, as that term is defined in
the Securities Act.

REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be aggregated
to determine the applicable reduction. See "Purchase and Redemption of Fund
Shares--Reduction and Waiver of Initial Sales Charges--Class A Shares" in the
Statement of Additional Information.

25
<PAGE>

BENEFIT PLANS. Class A shares may be purchased at NAV, without payment of an
initial sales charge, by pension, profit-sharing or other employee benefit plans
qualified under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Sections 457 and 403(b)(7) of the Internal
Revenue Code (Benefit Plans), provided that the plan has existing assets of at
least $1 million invested in shares of Prudential Mutual Funds (excluding money
market funds other than those acquired pursuant to the exchange privilege) or
1,000 eligible employees or participants. In the case of Benefit Plans whose
accounts are held directly with the Transfer Agent or Prudential Securities and
for which the Transfer Agent or Prudential Securities does individual account
recordkeeping (Direct Account Benefit Plans) and Benefit Plans sponsored by PSI
or its subsidiaries (PSI or Subsidiary Prototype Benefit Plans), Class A shares
may be purchased at NAV by participants who are repaying loans made from such
plans to the participant.

PRUDENTIAL VISTA PROGRAM. Class A shares are offered at net asset value to
certain qualified employee retirement benefit plans under Section 401 of the
Internal Revenue Code, for which Prudential Defined Contribution Services serves
as the recordkeeper, provided that such plan is also participating in the
Prudential Vista Program (PruVista Plan), and provided further that (i) for
existing plans, the plan has existing assets of at least $1 million and at least
100 eligible employees or participants, and (ii) for new plans, the plan has at
least 500 eligible employees or participants. The term "existing assets" for
this purpose includes transferable cash and GICs (guaranteed investment
contracts) maturing within 4 years.

SPECIAL RULES APPLICABLE TO RETIREMENT PLANS. After a Benefit Plan or the
PruVista Plan qualifies to purchase Class A shares at NAV, all subsequent
purchases will be made at NAV.

OTHER WAIVERS. In addition, Class A shares may be purchased at NAV, through
Prudential Securities or the Transfer Agent, by the following persons: (a)
Directors and officers of the Fund and other Prudential Mutual Funds, (b)
employees of Prudential Securities and PMF and their subsidiaries and members of
the families of such persons who maintain an "employee related" account at
Prudential Securities or the Transfer Agent, (c) employees and special agents of
Prudential and its subsidiaries and all persons who have retired directly from
active service with Prudential or one of its subsidiaries, (d) registered
representatives and employees of dealers who have entered into a selected dealer
agreement with Prudential Securities provided that purchases at NAV are
permitted by such person's employer and (e) investors who have a business
relationship with a financial adviser who joined Prudential Securities from
another investment firm, provided that (i) the purchase is made within 90 days
of the commencement of the financial adviser's employment at Prudential
Securities, (ii) the purchase is made with proceeds of a redemption of shares of
any open-end, non-money market fund sponsored by the financial adviser's
previous employer (other than a fund which imposes a distribution or service fee
of .25 of 1% or less) and (iii) the financial adviser served as the client's
broker on the previous purchases.

Class A shares may be purchased at net asset value without payment of a sales
charge by a unit investment trust (Trust) which is organized and sponsored by
Prudential Securities. Additionally, unit holders of the Trust may elect to
purchase Class A shares of the Fund at net asset value with proceeds from cash
distributions from the Trust under circumstances described in the prospectus of
the Trust. At the termination date of the Trust, a unit holder may invest the
proceeds from the termination of his units in shares of the Fund at net asset
value, provided: (i) that the investment in the Fund is effected within 30 days
of such termination; and (ii) that the unit holder or his dealer provides the
Distributor with a letter which: (a) identifies the name, address and telephone
number of the dealer who sold to the unit holder the units to be redeemed or
repurchased; and (b) states that the investment in the Fund is being funded
exclusively by the proceeds from the redemption or repurchase of units of the
Trust. Such reinvestments of Trust distributions shall be subject to 12b-1 fees.

You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec that you are entitled to the reduction or waiver
of the sales charge. The reduction or waiver will be granted subject to
confirmation of your entitlement. No initial sales charges are imposed upon
Class A shares acquired upon the reinvestment of dividends and distributions.
See "Purchase and Redemption of Fund Shares--Reduction and Waiver of Initial
Sales Charges--Class A Shares" in the Statement of Additional Information.

26
<PAGE>
CLASS B AND CLASS C SHARES

The offering price of Class B and Class C shares for investors choosing one of
the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent or Prudential Securities. Although
there is no sales charge imposed at the time of purchase, redemptions of Class B
and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges."

HOW TO SELL YOUR SHARES

YOU CAN REDEEM YOUR SHARES AT ANY TIME FOR CASH AT THE NAV NEXT DETERMINED
AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE TRANSFER AGENT OR
PRUDENTIAL SECURITIES. SEE "HOW THE FUND VALUES ITS SHARES." In certain cases,
however, redemption proceeds from the Class B shares will be reduced by the
amount of any applicable contingent deferred sales charge, as described below.
See "Contingent Deferred Sales Charges" below.

IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST REDEEM
YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER. IF YOU
HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION SIGNED BY
YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD CERTIFICATES,
THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE CERTIFICATES,
MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER FOR THE REDEMPTION REQUEST TO BE
PROCESSED. IF REDEMPTION IS REQUESTED BY A CORPORATION, PARTNERSHIP, TRUST OR
FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY ACCEPTABLE TO THE TRANSFER AGENT MUST
BE SUBMITTED BEFORE SUCH REQUEST WILL BE ACCEPTED. All correspondence and
documents concerning redemptions should be sent to the Fund in care of its
Transfer Agent, Prudential Mutual Fund Services, Inc., Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.

If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to a
person other than the record owner, (c) are to be sent to an address other than
the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution. For clients of Prusec, a signature guarantee may
be obtained from the agency or office manager of most Prudential Insurance and
Financial Services or Preferred Services offices.

PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN SEVEN
DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR WRITTEN
REQUEST, EXCEPT AS INDICATED BELOW. IF YOU HOLD SHARES THROUGH PRUDENTIAL
SECURITIES, PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE CREDITED TO YOUR
PRUDENTIAL SECURITIES ACCOUNT, UNLESS YOU INDICATE OTHERWISE. Such payment may
be postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on such Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the SEC, by
order, so permits; provided that applicable rules and regulations of the SEC
shall govern as to whether the conditions prescribed in (b), (c) or (d) exist.

PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL THE
FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS BEEN
HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE CHECK
BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY WIRE OR
BY CERTIFIED OR OFFICIAL BANK CHECK.

REDEMPTION IN KIND. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of securities from the investment
portfolio of the Fund, in lieu of cash, in conformity with applicable rules of
the SEC. Securities will be readily marketable and will be valued in the same
manner as in a regular redemption. See "How the

27
<PAGE>

Fund Values its Shares." If your shares are redeemed in kind, you would incur
transaction costs in converting the assets into cash. The Fund, however, has
elected to be governed by Rule 18f-1 under the Investment Company Act, under
which the Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund during any 90-day period for
any one shareholder.

INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the Board of
Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose account
has a net asset value of less than $500 due to a redemption. The Fund will give
such shareholders 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption. No contingent deferred sales charge
will be imposed on any involuntary redemption.

90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not previously
exercised the repurchase privilege, you may reinvest any portion or all of the
proceeds of such redemption in shares of the Fund at the NAV next determined
after the order is received, which must be within 90 days after the date of the
redemption. No sales charge will apply to such repurchases. You will receive PRO
RATA credit for any contingent deferred sales charge paid in connection with the
redemption of Class B or Class C shares. You must notify the Fund's Transfer
Agent, either directly or through Prudential Securities or Prusec, at the time
the repurchase privilege is exercised that you are entitled to credit for the
contingent deferred sales charge previously paid. Exercise of the repurchase
privilege will generally not affect federal income tax treatment of any gain
realized upon redemption. If the redemption resulted in a loss, some or all of
the loss, depending on the amount reinvested, will generally not be allowed for
federal income tax purposes.

CONTINGENT DEFERRED SALES CHARGES

Redemptions of Class B shares will be subject to a contingent deferred sales
charge or CDSC declining from 5% to zero over a six-year period. Class C shares
redeemed within one year of purchase will be subject to a 1% CDSC. The CDSC will
be deducted from the redemption proceeds and reduce the amount paid to you. The
CDSC will be imposed on any redemption by you which reduces the current value of
your Class B or Class C shares to an amount which is lower than the amount of
all payments by you for shares during the preceding six years, in the case of
Class B shares, and one year, in the case of Class C shares. A CDSC will be
applied on the lesser of the original purchase price or the current value of the
shares being redeemed. Increases in the value of your shares or shares acquired
through reinvestment of dividends or distributions are not subject to a CDSC.
The amount of any CDSC will be paid to and retained by the Distributor. See "How
the Fund is Managed--Distributor" and "Waiver of the Contingent Deferred Sales
Charges--Class B Shares" below.

The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of redemption
of such shares. Solely for purposes of determining the number of years from the
time of any payment for the purchase of shares, all payments during a month will
be aggregated and deemed to have been made on the last day of the month. The
CDSC will be calculated from the first day of the month after the initial
purchase, excluding the time shares were held in a money market fund. See "How
to Exchange Your Shares."

28
<PAGE>
The following table sets forth the rates of the CDSC applicable to redemptions
of Class B shares:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLARS INVESTED OR
PAYMENT MADE REDEMPTION PROCEEDS
- ------------------------------------------------------------------ --------------------------
<S> <C>
First............................................................. 5.0%
Second............................................................ 4.0%
Third............................................................. 3.0%
Fourth............................................................ 2.0%
Fifth............................................................. 1.0%
Sixth............................................................. 1.0%
Seventh........................................................... None
</TABLE>

In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in NAV above the total amount of payments for
the purchase of Fund shares made during the preceding six years (five years for
shares purchased prior to January 22, 1990); then of amounts representing the
cost of shares held beyond the applicable CDSC period; then of amounts
representing the cost of shares acquired prior to July 1, 1985; and finally, of
amounts representing the cost of shares held for the longest period of time
within the applicable CDSC period.

For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided to
redeem $500 of your investment. Assuming at the time of the redemption the NAV
had appreciated to $12 per share, the value of your Class B shares would be
$1,260 (105 shares at $12 per share). The CDSC would not be applied to the value
of the reinvested dividend shares and the amount which represents appreciation
($260). Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4% (the applicable rate in the second year after
purchase) for a total CDSC of $9.60.

For federal income tax purposes, the amount of the CDSC will reduce the gain
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.

WAIVER OF THE CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES. The CDSC will
be waived in the case of a redemption of Class B shares following the death or
disability of a shareholder or, in the case of a trust account, following the
death or disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint tenancy
(with rights of survivorship), at the time of death or initial determination of
disability, provided that the shares were purchased prior to death or
disability.

The CDSC will also be waived in the case of a total or partial redemption in
connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions include: (i) in the case of a
tax-deferred retirement plan, a lump-sum or other distribution after retirement;
(ii) in the case of an IRA or Section 403(b) custodial account, a lump-sum or
other distribution after attaining age 59 1/2; and (iii) a tax-free return of an
excess contribution or plan distributions following the death or disability of
the shareholder, provided that the shares were purchased prior to death or
disability. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation from service (I.E.,
following voluntary or involuntary termination of employment or following
retirement). Under no circumstances will the CDSC be waived on redemptions
resulting from the termination of a tax-deferred retirement plan, unless such
redemptions otherwise qualify for a waiver as described above. In the case of
Direct Account and PSI or Subsidiary Prototype Benefit Plans, the CDSC will be
waived on redemptions which represent borrowings from such plans. Shares
purchased with amounts used to repay a loan from such plans on which a CDSC was
not previously deducted will

29
<PAGE>
thereafter be subject to a CDSC without regard to the time such amounts were
previously invested. In the case of a 401(k) plan, the CDSC will also be waived
upon the redemption of shares purchased with amounts used to repay loans made
from the account to the participant and from which a CDSC was previously
deducted.

In addition, the CDSC will be waived on redemptions of shares held by a
Director of the Fund.

You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to waiver of the CDSC and provide the Transfer Agent with such
supporting documentation as it may deem appropriate. The waiver will be granted
subject to confirmation of your entitlement. See "Purchase and Redemption of
Fund Shares--Waiver of the Contingent Deferred Sales Charge--Class B Shares" in
the Statement of Additional Information.

A quantity discount may apply to redemptions of Class B shares purchased prior
to August 1, 1994. See "Purchase and Redemption of Fund Shares--Quantity
Discount--Class B Shares Purchased Prior to August 1, 1994" in the Statement of
Additional Information.

CONVERSION FEATURE--CLASS B SHARES

Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. It is currently anticipated that
conversions will occur during the months of February, May, August and November.
Conversions will be effected at relative net asset value without the imposition
of any additional sales charge. The first conversion of Class B shares occurred
in February 1995, when the conversion feature was first implemented.

Since the Fund tracks amounts paid rather than the number of shares bought on
each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (i)
the ratio of (a) the amounts paid for Class B shares purchased at least seven
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (ii) multiplied by the total
number of Class B shares purchased and then held in your account. Each time any
Eligible Shares in your account convert to Class A shares, all shares or amounts
representing Class B shares then in your account that were acquired through the
automatic reinvestment of dividends and other distributions will convert to
Class A shares.

For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately seven years before such
conversion date. For example, if 100 shares were initially purchased at $10 per
share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (I.E., $1,000
divided by $2,100 (or 47.62%) multiplied by 200 shares equals 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to shareholders.

Since annual distribution-related fees are lower for Class A shares than Class
B shares, the per share net asset value of the Class A shares may be higher than
that of the Class B shares at the time of conversion. Thus, although the
aggregate dollar value will be the same, you may receive fewer Class A shares
than Class B shares converted. See "How the Fund Values its Shares."

For purposes of calculating the applicable holding period for conversions, all
payments for Class B shares during a month will be deemed to have been made on
the last day of the month, or for Class B shares acquired through exchange, or a
series of exchanges, on the last day of the month in which the original payment
for purchases of such Class B shares was made. For Class B shares previously
exchanged for shares of a money market fund the time period during which such
shares were held in the money market fund will be excluded. For example, Class B
shares held in a money market fund for one year will not convert to Class A
shares until approximately eight years from purchase. For purposes of measuring
the time period during which shares are

30
<PAGE>

held in a money market fund, exchanges will be deemed to have been made on the
last day of the month. Class B shares acquired through exchange will convert to
Class A shares after expiration of the conversion period applicable to the
original purchase of such shares.

The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service that (i) the
dividends and other distributions paid on Class A, Class B and Class C shares
will not constitute "preferential dividends" under the Internal Revenue Code and
(ii) the conversion of shares does not constitute a taxable event. The
conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended, Class
B shares of the Fund will continue to be subject, possibly indefinitely, to
their higher annual distribution and service fee.

HOW TO EXCHANGE YOUR SHARES

AS A SHAREHOLDER OF THE FUND, YOU HAVE AN EXCHANGE PRIVILEGE WITH CERTAIN
OTHER PRUDENTIAL MUTUAL FUNDS, INCLUDING ONE OR MORE SPECIFIED MONEY MARKET
FUNDS, SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS OF SUCH FUNDS. CLASS A,
CLASS B AND CLASS C SHAREHOLDERS OF THE FUND MAY EXCHANGE THEIR SHARES FOR CLASS
A, CLASS B AND CLASS C SHARES, RESPECTIVELY, OF ANOTHER FUND ON THE BASIS OF THE
RELATIVE NAV. No sales charge will be imposed at the time of the exchange. Any
applicable CDSC payable upon the redemption of shares exchanged will be
calculated from the first day of the month after the initial purchase, excluding
the time shares were held in a money market fund. Class B and Class C shares may
not be exchanged into money market funds other than Prudential Special Money
Market Fund. For purposes of calculating the holding period applicable to the
Class B conversion feature, the time period during which Class B shares were
held in a money market fund will be excluded. See "Conversion Feature--Class B
Shares" above. An exchange will be treated as a redemption and purchase for tax
purposes. See "Shareholder Investment Account--Exchange Privilege" in the
Statement of Additional Information.

IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE TRANSFER
AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call the Fund
at (800) 225-1852 to execute a telephone exchange of shares, on weekdays, except
holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time. For your
protection and to prevent fraudulent exchanges, your telephone call will be
recorded and you will be asked to provide your personal identification number. A
written confirmation of the exchange transaction will be sent to you. NEITHER
THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST WHICH
RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE UNDER
THE FOREGOING PROCEDURES. All exchanges will be made on the basis of the
relative NAV of the two funds next determined after the request is received in
good order. The Exchange Privilege is available only in states where the
exchange may legally be made.

IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.

IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE
FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.

You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.

IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE EXCHANGE OF
SHARES MAY BE DIFFICULT TO IMPLEMENT AND SHAREHOLDERS SHOULD MAKE EXCHANGES BY
MAIL BY WRITING TO PRUDENTIAL MUTUAL FUND SERVICES, INC., AT THE ADDRESS NOTED
ABOVE.

SPECIAL EXCHANGE PRIVILEGE. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV. See "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above. Under this exchange privilege, amounts representing any Class B and Class
C shares (which are not subject to a CDSC) held in such a

31
<PAGE>

shareholder's account will be automatically exchanged for Class A shares on a
quarterly basis, unless the shareholder elects otherwise. It is currently
anticipated that this exchange will occur quarterly in February, May, August and
November. Eligibility for this exchange privilege will be calculated on the
business day prior to the date of the exchange. Amounts representing Class B or
Class C shares which are not subject to a CDSC include the following: (1)
amounts representing Class B or Class C shares acquired pursuant to the
automatic reinvestment of dividends and distributions, (2) amounts representing
the increase in the net asset value above the total amount of payments for the
purchase of Class B or Class C shares and (3) amounts representing Class B or
Class C shares held beyond the applicable CDSC period. Class B and Class C
shareholders must notify the Transfer Agent either directly or through
Prudential Securities or Prusec that they are eligible for this special exchange
privilege.

The Exchange Privilege may be modified or terminated at any time on 60 days'
notice to shareholders.

SHAREHOLDER SERVICES

In addition to the Exchange Privilege, as a shareholder in the Fund, you can
take advantage of the following additional services and privileges:

- AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are automatically
reinvested in full and fractional shares of the Fund at NAV without a sales
charge. You may direct the Transfer Agent in writing not less than 5 full
business days prior to the record date to have subsequent dividends and/or
distributions sent in cash rather than reinvested. If you hold shares through
Prudential Securities, you should contact your financial adviser.

- AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP you may make regular
purchases of the Fund's shares in amounts as little as $50 via an automatic
debit to a bank account or Prudential Securities account (including a Command
Account). For additional information about this service, you may contact your
Prudential Securities financial adviser, Prusec representative or the Transfer
Agent directly.

- TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or the
Transfer Agent. If you are considering adopting such a plan, you should consult
with your own legal or tax adviser with respect to the establishment and
maintenance of such a plan.

- SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares-- Contingent Deferred Sales Charges" above.

- REPORTS TO SHAREHOLDERS. The Fund will send to you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 or by writing to the Fund at One Seaport
Plaza, New York, New York 10292. In addition, monthly unaudited financial data
are available upon request from the Fund.

SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at One
Seaport Plaza, New York, New York 10292, or by telephone, at (800) 225-1852
(toll-free) or, from outside the U.S.A., at (908) 417-7555 (collect).

For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.

32
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY

Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec representative or telephone the Funds at
(800) 225-1852 for a free prospectus. Read the prospectus carefully before you
invest or send money.

TAXABLE BOND FUNDS
Prudential Adjustable Rate Securities Fund, Inc.
Prudential Diversified Bond Fund, Inc.
Prudential GNMA Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Prudential U.S. Government Fund
The BlackRock Government Income Trust
TAX-EXEMPT BOND FUNDS
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Modified Term Series
Prudential Municipal Series Fund
Arizona Series
Florida Series
Georgia Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
GLOBAL FUNDS
Prudential Europe Growth Fund, Inc.
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio
Short-Term Global Income Portfolio
Global Utility Fund, Inc.
EQUITY FUNDS
Prudential Allocation Fund
Conservatively Managed Portfolio
Strategy Portfolio
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Growth Opportunity Fund, Inc.
Prudential IncomeVertible-Registered Trademark- Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Strategist Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
MONEY MARKET FUNDS
- -TAXABLE MONEY MARKET FUNDS
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
Money Market Series
Prudential MoneyMart Assets
- -TAX-FREE MONEY MARKET FUNDS
Prudential Tax-Free Money Fund
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
-COMMAND FUNDS
Command Money Fund
Command Government Fund
Command Tax-Free Fund
- -INSTITUTIONAL MONEY MARKET FUNDS
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series

A-1

<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.

------------------------------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS...................................................... 2
Risk Factors and Special Characteristics........................... 2
FUND EXPENSES........................................................ 4
FINANCIAL HIGHLIGHTS................................................. 5
HOW THE FUND INVESTS................................................. 8
Investment Objective and Policies.................................. 8
Hedging and Income Enhancement Strategies.......................... 8
Other Investments and Policies..................................... 14
Investment Restrictions............................................ 15
HOW THE FUND IS MANAGED.............................................. 15
Manager............................................................ 16
Distributor........................................................ 16
Portfolio Transactions............................................. 19
Custodian and Transfer and Dividend Disbursing Agent............... 19
HOW THE FUND VALUES ITS SHARES....................................... 19
HOW THE FUND CALCULATES PERFORMANCE.................................. 19
TAXES, DIVIDENDS AND DISTRIBUTIONS................................... 20
GENERAL INFORMATION.................................................. 22
Description of Common Stock........................................ 22
Additional Information............................................. 22
SHAREHOLDER GUIDE.................................................... 23
How to Buy Shares of the Fund...................................... 23
Alternative Purchase Plan.......................................... 24
How to Sell Your Shares............................................ 27
Conversion Feature--Class B Shares................................. 30
How to Exchange Your Shares........................................ 31
Shareholder Services............................................... 32
THE PRUDENTIAL MUTUAL FUND FAMILY.................................... A-1
</TABLE>

-------------------------------------------

MF101A 4331465

Class A: 744316-10-0
CUSIP Nos.: Class B: 744316-20-6
Class C: 744316-30-8

PRUDENTIAL
EQUITY FUND, INC.
- -------------------

FEBRUARY 28,
1995

[LOGO]
<PAGE>
PRUDENTIAL EQUITY FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 28, 1995

Prudential Equity Fund, Inc. (the Fund), is an open-end, diversified
management investment company whose investment objective is long-term growth of
capital. The Fund will seek to achieve this objective by investing primarily in
common stocks of major, established corporations which, in the opinion of its
investment adviser, are believed to be in sound financial condition and to have
prospects of price appreciation greater than broadly based stock indices. The
Fund's purchase and sale of put and call options and related short-term trading
may result in a high portfolio turnover rate. These activities may be considered
speculative and may result in higher risks and costs to the Fund. The Fund may
buy and sell certain derivatives, including options on stock and stock indices
and futures for the purpose of hedging its securities portfolio pursuant to
limits described herein. There can be no assurance that the Fund's investment
objective will be achieved. See "Investment Objective and Policies."

The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus, dated February 28, 1995, a copy
of which may be obtained from the Fund upon request.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
CROSS- REFERENCE
TO PAGE IN
PAGE PROSPECTUS
--------- -------------------
<S> <C> <C>
General Information and History.................................................................. B-2 22
Investment Objective and Policies................................................................ B-2 8
Investment Restrictions.......................................................................... B-11 15
Directors and Officers........................................................................... B-12 15
Manager.......................................................................................... B-16 16
Distributor...................................................................................... B-17 16
Portfolio Transactions and Brokerage............................................................. B-20 19
Purchase and Redemption of Fund Shares........................................................... B-21 23
Shareholder Investment Account................................................................... B-24 32
Net Asset Value.................................................................................. B-27 19
Performance Information.......................................................................... B-28 19
Dividends, Distributions and Taxes............................................................... B-30 20
Custodian, Transfer and Dividend Disbursing Agent and Independent Accountants.................... B-31 19
Financial Statements............................................................................. B-32 --
Report of Independent Accountants................................................................ B-41 --
</TABLE>

- --------------------------------------------------------------------------------

MF101B
<PAGE>
GENERAL INFORMATION AND HISTORY

On May 12, 1983, the shareholders of the Fund approved an amendment to the
Fund's Articles of Incorporation to change the Fund's name from Chancellor
Equity Fund, Inc. to Prudential-Bache Equity Fund, Inc. On November 18, 1993,
the shareholders of the Fund approved an amendment to the Fund's Articles of
Incorporation to change the Fund's name to Prudential Equity Fund, Inc.

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is long-term growth of capital. The Fund
attempts to achieve such objective by investing primarily in common stocks of
major, established corporations which, in the opinion of the Fund's investment
adviser, are believed to be in sound financial condition and to have prospects
of price appreciation greater than broadly based stock indices. The Fund may
also invest in preferred stocks and bonds, which have either attached warrants
or a conversion privilege into common stocks. There can be no assurance that the
Fund's investment objective will be achieved. See "How the Fund Invests--
Investment Objective and Policies" in the Prospectus.

LIMITATIONS ON PURCHASE AND SALE OF STOCK OPTIONS, OPTIONS ON STOCK INDICES,
STOCK INDEX FUTURES AND OPTIONS THEREON

The Fund may purchase put options only on equity securities held in its
portfolio and write call options on stocks only if they are covered, and such
call options must remain covered so long as the Fund is obligated as a writer.
The Fund has undertaken with certain state securities commissions that, so long
as shares of the Fund are registered in those states, it will not purchase put
and call options on stock indices if, after any such purchase, the aggregate
premiums paid for such options would exceed 20% of the Fund's total net assets.

The Fund may purchase put and call options and write covered call options on
equity securities traded on securities exchanges, on NASDAQ or in the
over-the-counter market (OTC options).

The Fund may purchase and write put and call options on stock indices traded
on securities exchanges, on NASDAQ or in the over-the-counter market.

CALL OPTIONS ON STOCK. The Fund may, from time to time, write call options
on its portfolio securities. The Fund may write only call options which are
"covered," meaning that the Fund either owns the underlying security or has an
absolute and immediate right to acquire that security, without additional cash
consideration (or for additional cash consideration held in a segregated account
by its Custodian), upon conversion or exchange of other securities currently
held in its portfolio. In addition, the Fund will not permit the call to become
uncovered prior to the expiration of the option or termination through a closing
purchase transaction as described below. If the Fund writes a call option, the
purchaser of the option has the right to buy (and the Fund has the obligation to
sell) the underlying security at the exercise price throughout the term of the
option. The amount paid to the Fund by the purchaser of the option is the
"premium." The Fund's obligation to deliver the underlying security against
payment of the exercise price would terminate either upon expiration of the
option or earlier if the Fund were to effect a "closing purchase transaction"
through the purchase of an equivalent option on an exchange. There can be no
assurance that a closing purchase transaction can be effected.

The Fund would not be able to effect a closing purchase transaction after it
had received notice of exercise. In order to write a call option, the Fund is
required to comply with the rules of The Options Clearing Corporation and the
various exchanges with respect to collateral requirements. The Fund may not
purchase call options on individual stocks except in connection with a closing
purchase transaction. It is possible that the cost of effecting a closing
purchase transaction may be greater than the premium received by the Fund for
writing the option.

PUT OPTIONS ON STOCK. The Fund may also purchase put and call options. If
the Fund purchases a put option, it has the option to sell a given security at a
specified price at any time during the term of the option. If the Fund purchases
a call option, it has the option to buy a security at a specified price at any
time during the term of the option.

Purchasing put options may be used as a portfolio investment strategy when
the investment adviser perceives significant short-term risk but substantial
long-term appreciation for the underlying security. The put option acts as an
insurance policy, as it protects against significant downward price movement
while it allows full participation in any upward movement. If the Fund is
holding a stock which it feels has strong fundamentals, but for some reason may
be weak in the near term, it may purchase a put on such security, thereby giving
itself the right to sell such security at a certain strike price throughout the
term of the option.

B-2
<PAGE>
Consequently, the Fund will exercise the put only if the price of such security
falls below the strike price of the put. The difference between the put's strike
price and the market price of the underlying security on the date the Fund
exercises the put, less transaction costs, will be the amount by which the Fund
will be able to hedge against a decline in the underlying security. If during
the period of the option the market price for the underlying security remains at
or above the put's strike price, the put will expire worthless, representing a
loss of the price the Fund paid for the put, plus transaction costs. If the
price of the underlying security increases, the profit the Fund realizes on the
sale of the security will be reduced by the premium paid for the put option less
any amount for which the put may be sold.

STOCK INDEX OPTIONS. Except as described below, the Fund will write call
options on indices only if on such date it holds a portfolio of stocks at least
equal to the value of the index times the multiplier times the number of
contracts. When the Fund writes a call option on a broadly based stock market
index, the Fund will segregate or put into escrow with its Custodian, or pledge
to a broker as collateral for the option, any combination of cash, cash
equivalents or "qualified securities" with a market value at the time the option
is written of not less than 100% of the current index value times the multiplier
times the number of contracts.

If the Fund has written an option on an industry or market segment index, it
will segregate or put into escrow with its Custodian, or pledge to a broker as
collateral for the option, one or more "qualified securities," all of which are
stocks of issuers in such industry or market segment, with a market value at the
time the option is written of not less than 100% of the current index value
times the multiplier times the number of contracts.

If at the close of business on any day the market value of such qualified
securities so segregated, escrowed or pledged falls below 100% of the current
index value times the multiplier times the number of contracts, the Fund will so
segregate, escrow or pledge an amount in cash, Treasury bills or other
high-grade short-term obligations equal in value to the difference. In addition,
when the Fund writes a call on an index which is in-the-money at the time the
call is written, the Fund will segregate with its Custodian or pledge to the
broker as collateral cash, U.S. Government or other high-grade short-term debt
obligations equal in value to the amount by which the call is in-the-money times
the multiplier times the number of contracts. Any amount segregated pursuant to
the foregoing sentence may be applied to the Fund's obligation to segregate
additional amounts in the event that the market value of the qualified
securities falls below 100% of the current index value times the multiplier
times the number of contracts. A "qualified security" is an equity security
which is listed on a securities exchange or listed on NASDAQ against which the
Fund has not written a stock call option and which has not been hedged by the
Fund by the sale of stock index futures. However, if the Fund holds a call on
the same index as the call written where the exercise price of the call held is
equal to or less than the exercise price of the call written or greater than the
exercise price of the call written if the difference is maintained by the Fund
in cash, Treasury bills or other high-grade short-term obligations in a
segregated account with its Custodian, it will not be subject to the
requirements described in this paragraph.

STOCK INDEX FUTURES. The Fund will purchase and sell stock index futures
contracts as a hedge against changes resulting from market conditions in the
values of securities which are held in the Fund's portfolio or which it intends
to purchase or when they are economically appropriate for the reduction of risks
inherent in the ongoing management of the Fund. In instances involving the
purchase of stock index futures contracts by the Fund, an amount of cash, cash
equivalents and U.S. Government securities, equal to the market value of the
futures contracts, will be deposited in a segregated account with the Fund's
Custodian and/or in a margin account with a broker to collateralize the position
and thereby insure that the use of such futures is unleveraged.

OPTIONS ON STOCK INDEX FUTURES CONTRACTS. In the case of options on stock
index futures, the holder of the option pays a premium and receives the right,
upon exercise of the option at a specified price during the option period, to
assume a position in a stock index futures contract (a long position if the
option is a call and a short position if the option is a put). If the option is
exercised by the holder before the last trading day during the option period,
the option writer delivers the futures position, as well as any balance in the
writer's futures margin account, which represents the amount by which the market
price of the stock index futures contract at exercise exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the option on
the stock index future. If it is exercised on the last trading day, the option
writer delivers to the option holder cash in an amount equal to the difference
between the option exercise price and the closing level of the relevant index on
the date the option expires.

LIMITATIONS ON THE PURCHASE AND SALE OF STOCK INDEX FUTURES AND OPTIONS ON
STOCK INDEX FUTURES. Under regulations of the Commodity Exchange Act, investment
companies registered under the Investment Company Act of 1940, as amended (the
Investment Company Act), are exempt from the definition of "commodity pool
operator," subject to compliance with certain

B-3
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conditions. The exemption is conditioned upon the Fund's purchasing and selling
futures contracts and options thereon for BONA FIDE hedging transactions, except
that the Fund may purchase and sell futures and options thereon for any other
purpose to the extent that the aggregate initial margin and option premiums do
not exceed 5% of the liquidation value of the Fund's total assets.

RISKS OF TRANSACTIONS IN STOCK OPTIONS. Writing of options involves the risk
that there will be no market in which to effect a closing transaction. An
exchange traded option may be closed out only on an exchange, board of trade or
other trading facility which provides a secondary market for an option of the
same series. Although the Fund will generally purchase or write only those
exchange traded options for which there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange will
exist for any particular option, or at any particular time, and for some options
no secondary market on an exchange may exist. In such event it might not be
possible to effect closing transactions in particular exchange traded options,
with the result that the Fund would have to exercise its options in order to
realize any profit and would incur brokerage commissions upon the exercise of
call options and upon the subsequent disposition of underlying securities
acquired through the exercise of call options or upon the purchase of underlying
securities for the exercise of put options. If the Fund as a covered call option
writer is unable to effect a closing purchase transaction in a secondary market,
it will not be able to sell the underlying security until the option expires or
it delivers the underlying security upon exercise.

In the case of OTC options, it is not possible to effect a closing
transaction in the same manner as exchange traded options because a clearing
corporation is not interposed between the buyer and seller of the option. When
the Fund writes an OTC option, it generally will be able to close out the OTC
option prior to its expiration only by entering into a closing purchase
transaction with the dealer with which the Fund originally wrote the OTC option.
Any such cancellation, if agreed to, may require the Fund to pay a premium to
the counterparty. While the Fund will enter into OTC options only with dealers
which agree to, and which are expected to be capable of, entering into closing
transactions with the Fund, there can be no assurance that the Fund will be able
to liquidate an OTC option at a favorable price at any time prior to expiration.
Until the Fund is able to effect a closing purchase transaction in a covered OTC
call option the Fund has written, it will not be able to liquidate securities
used as cover until the option expires or is exercised or different cover is
substituted. Alternatively, the Fund could write an OTC call option to, in
effect, close an existing OTC call option or write an OTC put option to close
its position on an OTC put option. However, the Fund would remain exposed to
each counterparty's credit risk on the put or call until such option is
exercised or expires. There is no guarantee that the Fund will be able to write
put or call options, as the case may be, that would effectively close an
existing position. In the event of insolvency of the counterparty, the Fund may
be unable to liquidate an OTC option.

The Fund may also purchase a "protective put," I.E., a put option acquired
for the purpose of protecting a portfolio security from a decline in market
value. In exchange for the premium paid for the put option, the Fund acquires
the right to sell the underlying security at the exercise price of the put
regardless of the extent to which the underlying security declines in value. The
loss to the Fund is limited to the premium paid for, and transaction costs in
connection with, the put plus the initial excess, if any, of the market price of
the underlying security over the exercise price. However, if the market price of
the security underlying the put rises, the profit the Fund realizes on the sale
of the security will be reduced by the premium paid for the put option less any
amount (net of transaction costs) for which the put may be sold. Similar
principles apply to the purchase of puts on stock indices in the
over-the-counter market.

As discussed above, an OTC option is a direct contractual relationship with
another party. Consequently, in entering into OTC options, the Fund will be
exposed to the risk that the counterparty will default on, or be unable to
complete, due to bankruptcy or otherwise, its obligation on the option. In such
an event, the Fund may lose the benefit of the transaction. Consequently, the
value of an OTC option to the Fund is dependent upon the financial viability of
the counterparty. If the Fund decides to enter into transactions in OTC options,
the Subadviser will take into account the credit quality of counterparties in
order to limit the risk of default by the counterparty.

OTC options may also be illiquid securities with respect to which no
secondary market exists. The Fund may not be able to effect closing transactions
for such options. The staff of the SEC has taken the position that purchased OTC
options and the assets used as "cover" for written OTC options are illiquid
securities unless the Fund and the counterparty have provided for the Fund at
its election to unwind the OTC option. The exercise of such an option ordinarily
would involve the payment by the Fund of an amount designed to reflect the
counterparty's economic loss from an early termination, but does allow the Fund
to treat the assets used as "cover" as "liquid."

RISKS OF OPTIONS ON INDICES. The Fund's purchase and sale of options on
indices will be subject to risks described above under "Risks of Transactions in
Stock Options." In addition, the distinctive characteristics of options on
indices create certain risks that are not present with stock options.

B-4
<PAGE>
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular stock, whether the Fund will
realize a gain or loss on the purchase or sale of an option on an index depends
upon movements in the level of stock prices in the stock market generally or in
an industry or market segment rather than movements in the price of a particular
stock. Accordingly, successful use by the Fund of options on indices would be
subject to the investment adviser's ability to predict correctly movements in
the direction of the stock market generally or of a particular industry. This
requires different skills and techniques than predicting changes in the price of
individual stocks. The investment adviser currently uses such techniques in
conjunction with the management of other mutual funds.

Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in the index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this occurred, the Fund would not be able to
close out options which it had purchased or written and, if restrictions on
exercise were imposed, may be unable to exercise an option it holds, which could
result in substantial losses to the Fund. It is the Fund's policy to purchase or
write options only on indices which include a number of stocks sufficient to
minimize the likelihood of a trading halt in the index, for example, the S&P 100
or S&P 500 index option.

Trading in index options commenced in April 1983 with the S&P 100 option
(formerly called the CBOE 100). Since that time a number of additional index
option contracts have been introduced including options on industry indices.
Although the markets for certain index option contracts have developed rapidly,
the markets for other index options are still relatively illiquid. The ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
this market will develop in all index option contracts. The Fund will not
purchase or sell any index option contract unless and until, in the investment
adviser's opinion, the market for such options has developed sufficiently that
the risk in connection with these transactions is no greater than the risk in
connection with options on stocks.

SPECIAL RISKS OF WRITING CALLS ON INDICES. Because exercises of index
options are settled in cash, a call writer such as the Fund cannot determine the
amount of its settlement obligations in advance and, unlike call writing on
specific stocks, cannot provide in advance for, or cover, its potential
settlement obligations by acquiring and holding the underlying securities.
However, the Fund will write call options on indices only under the
circumstances described above under "Limitations on the Purchase and Sale of
Stock Options, Options on Stock Indices, Stock Index Futures and Options
Thereon."

Price movements in the Fund's portfolio probably will not correlate
precisely with movements in the level of the index and, therefore, the Fund
bears the risk that the price of the securities held by the Fund may not
increase as much as the index. In such event, the Fund would bear a loss on the
call which is not completely offset by movements in the price of the Fund's
portfolio. It is also possible that the index may rise when the Fund's portfolio
of stocks does not rise. If this occurred, the Fund would experience a loss on
the call which is not offset by an increase in the value of its portfolio and
might also experience a loss in its portfolio. However, because the value of a
diversified portfolio will, over time, tend to move in the same direction as the
market, movements in the value of the Fund in the opposite direction as the
market would be likely to occur for only a short period or to a small degree.

Unless the Fund has other liquid assets which are sufficient to satisfy the
exercise of a call, the Fund would be required to liquidate portfolio securities
in order to satisfy the exercise. Because an exercise must be settled within
hours after receiving the notice of exercise, if the Fund fails to anticipate an
exercise, it may have to borrow from a bank (in amounts not exceeding 20% of the
Fund's total assets) pending settlement of the sale of securities in its
portfolio and would incur interest charges thereon.

When the Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise, and
the time the Fund is able to sell stocks in its portfolio. As with stock
options, the Fund will not learn that an index option has been exercised until
the day following the exercise date but, unlike a call on stock where the Fund
would be able to deliver the underlying securities in settlement, the Fund may
have to sell part of its stock portfolio in order to make settlement in cash,
and the price of such stocks might decline before they can be sold. This timing
risk makes certain strategies involving more than one option substantially more
risky with index options than with stock options. For example, even if an index
call which the Fund has written is "covered" by an index call held by the Fund
with the same strike price, the Fund will bear the risk that the level of the
index may decline between the close of trading on the date the exercise notice
is filed with the clearing corporation and the close of trading on the date the
Fund exercises the call it holds or the time the Fund sells the call which in
either case would occur no earlier than the day following the day the exercise
notice was filed.

B-5
<PAGE>
SPECIAL RISKS OF PURCHASING PUTS AND CALLS ON INDICES. If the Fund holds an
index option and exercises it before final determination of the closing index
value for that day, it runs the risk that the level of the underlying index may
change before closing. If such a change causes the exercised option to fall
out-of-the-money, the Fund will be required to pay the difference between the
closing index value and the exercise price of the option (times the applicable
multiplier) to the assigned writer. Although the Fund may be able to minimize
this risk by withholding exercise instructions until just before the daily
cutoff time or by selling rather than exercising an option when the index level
is close to the exercise price, it may not be possible to eliminate this risk
entirely because the cutoff times for index options may be earlier than those
fixed for other types of options and may occur before definitive closing index
values are announced.

RISKS OF TRANSACTIONS IN OPTIONS ON STOCK INDEX FUTURES. There are several
risks in connection with the use of options on stock index futures contracts as
a hedging device. The correlation between the price of the futures contract and
the movements in the index may not be perfect. Therefore, a correct forecast of
interest rates and other factors affecting markets for securities may still not
result in a successful hedging transaction.

Futures prices often are extremely volatile so successful use of options on
stock index futures contracts by the Fund is also subject to the ability of the
Fund's investment adviser to predict correctly movements in the direction of
markets, changes in supply and demand, interest rates, international political
and economic policies, and other factors affecting the stock market generally.
For example, if the Fund has hedged against the possibility of a decrease in an
index which would adversely affect the price of securities in its portfolio and
the price of such securities increases instead, then the Fund will lose part or
all of the benefit of the increased value of its securities because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Fund has insufficient cash to meet daily variation margin requirements, it
may need to sell securities to meet such requirements at a time when it is
disadvantageous to do so. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising market.

The hours of trading of options on stock index futures contracts may not
conform to the hours during which the Fund may trade the underlying securities.
To the extent the futures markets close before the securities markets,
significant price and rate movements can take place in the securities markets
that cannot be reflected in the futures markets.

Options on stock index futures contracts are highly leveraged and the
specific market movements of the contract underlying an option cannot be
predicted. Options on futures must be bought and sold on exchanges. Although the
exchanges provide a means of selling an option previously purchased or of
liquidating an option previously written by an offsetting purchase, there can be
no assurance that a liquid market will exist for a particular option at a
particular time. If such a market does not exist, the Fund, as the holder of an
option on futures contracts, would have to exercise the option and comply with
the margin requirements for the underlying futures contract to realize any
profit, and if the Fund were the writer of the option, its obligation would not
terminate until the option expired or the Fund was assigned an exercise notice.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

Since investments in foreign companies will usually involve currencies of
foreign countries, and since the Fund may hold funds in bank deposits in foreign
currencies, the value of the assets of the Fund as measured in U.S. dollars may
be affected favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations, and the Fund may incur costs in
connection with conversions between various currencies. The Fund will conduct
its foreign currency exchange transactions on a spot (I.E., cash) basis at the
spot rate prevailing in the foreign currency exchange market, or through
entering into forward contracts to purchase or sell foreign currencies. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for such trades.

The Fund may enter into forward foreign currency exchange contracts in
several circumstances. When the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, or when the Fund
anticipates the receipt in a foreign currency of dividends or interest payments
on a security which it holds, the Fund may desire to "lock-in" the U.S. dollar
price of the security or the U.S. dollar equivalent of such dividend or interest
payment, as the case may be. By entering into a forward contract for a fixed
amount of dollars, for the purchase or sale of the amount of foreign currency
involved in the underlying transactions, the Fund will be able to protect itself
against a possible loss resulting from an adverse change in the

B-6
<PAGE>
relationship between the U.S. dollar and the subject foreign currency during the
period between the date on which the security is purchased or sold, or on which
the dividend or interest payment is declared, and the date on which such
payments are made or received.

Additionally, when the investment adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, the Fund may enter into a forward contract for a fixed amount of
dollars, to sell the amount of foreign currency approximating the value of some
or all of the Fund's portfolio securities denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the successful execution of
a short-term hedging strategy is highly uncertain. The Fund will not enter into
such forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Fund to deliver an amount of
foreign currency in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the long-term investment decisions made with regard to overall diversification
strategies. However, the Fund believes that it is important to have the
flexibility to enter into such forward contracts when it determines that the
best interests of the Fund will thereby be served. The Fund's Custodian will
place cash or liquid equity or debt securities into a segregated account of the
Fund in an amount equal to the value of the Fund's total assets committed to the
consummation of forward foreign currency exchange contracts. If the value of the
securities placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account will equal the amount of the Fund's commitments with respect to such
contracts.

The Fund generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, the Fund may
either sell the portfolio security and make delivery of the foreign currency, or
it may retain the security and terminate its contractual obligation to deliver
the foreign currency by purchasing an "offsetting" contract with the same
currency trader obligating it to purchase, on the same maturity date, the same
amount of the foreign currency.

It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly, it
may be necessary for the Fund to purchase additional foreign currency on the
spot market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency that the Fund is obligated
to deliver and if a decision is made to sell the security and make delivery of
the foreign currency.

If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. Should forward
prices decline during the period between the Fund's entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Fund will
realize a gain to the extent that the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should forward
contract prices increase, the Fund will suffer a loss to the extent that the
price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.

The Fund's dealing in forward foreign currency exchange contracts will be
limited to the transactions described above. Of course, the Fund is not required
to enter into such transactions with regard to its foreign currency-denominated
securities. It also should be realized that this method of protecting the value
of the Fund's portfolio securities against a decline in the value of a currency
does not eliminate fluctuations in the underlying prices of the securities which
are unrelated to exchange rates. It simply establishes a rate of exchange which
one can achieve at some future point in time. Additionally, although such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time, they tend to limit any potential gain which
might result should the value of such currency increase.

Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend physically to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will do so from time to time, and investors should
be aware of the costs of currency conversion. Although foreign exchange dealers
do not charge a fee for conversion, they do realize a profit based on the
difference (the spread) between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.

B-7
<PAGE>
RISKS OF TRANSACTIONS IN OPTIONS ON FOREIGN CURRENCIES

An option position may be closed out only on an exchange, board of trade or
other trading facility which provides a secondary market for an option of the
same series. Although the Fund will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time, and for some options no secondary
market on an exchange or otherwise may exist. In such event it might not be
possible to effect closing transactions in particular options, with the result
that the Fund would have to exercise its options in order to realize any profits
and would incur brokerage commissions upon the exercise of call options and upon
the subsequent disposition of underlying currencies acquired through the
exercise of call options or upon the purchase of underlying currencies for the
exercise of put options. If the Fund as a covered call option writer is unable
to effect a closing purchase transaction in a secondary market, it will not be
able to sell the underlying currency until the option expires or it delivers the
underlying currency upon exercise.

Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in the class or series of options) would cease to exist,
although outstanding options on that exchange that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. There is no assurance that higher
than anticipated trading activity or other unforeseen events might not, at
times, render certain of the facilities of any of the clearing corporations
inadequate, and thereby result in the institution by an exchange of special
procedures which may interfere with the timely execution of customers' orders.
The Fund intends to purchase and sell only those options which are cleared by a
clearinghouse whose facilities are considered to be adequate to handle the
volume of options transactions.

RISKS OF OPTIONS ON FOREIGN CURRENCIES

Options on foreign currencies involve the currencies of two nations and,
therefore, developments in either or both countries can affect the values of
options on foreign currencies. Risks include those described in the Prospectus
under "How the Fund Invests--Other Investments and Policies," including
government actions affecting currency valuation and the movements of currencies
from one country to another. The quantities of currency underlying option
contracts represent odd lots in a market dominated by transactions between
banks; this can mean extra transaction costs upon exercise. Options markets may
be closed while round-the-clock interbank currency markets are open, and this
can create price and rate discrepancies.

RISKS OF TRANSACTIONS IN FUTURES CONTRACTS ON FOREIGN CURRENCIES

There are several risks in connection with the use of futures contracts as a
hedging device. Due to the imperfect correlation between the price of futures
contracts and movements in the currency or group of currencies, the price of a
futures contract may move more or less than the price of the currencies being
hedged. Therefore, a correct forecast of currency rates, market trends or
international political trends by the Manager or Subadviser may still not result
in a successful hedging transaction.

Although the Fund will purchase or sell futures contracts only on exchanges
where there appears to be an adequate secondary market, there is no assurance
that a liquid secondary market on an exchange will exist for any particular
contract or at any particular time. Accordingly, there can be no assurance that
it will be possible, at any particular time, to close a futures position. In the
event the Fund could not close a futures position and the value of such position
declined, the Fund would be required to continue to make daily cash payments of
variation margin. There is no guarantee that the price movements of the
portfolio securities denominated in foreign currencies will, in fact, correlate
with the price movements in the futures contracts and thus provide an offset to
losses on a futures contract. Currently, futures contracts are available on the
Australian Dollar, British Pound, Canadian Dollar, French Franc, Japanese Yen,
Swiss Franc, DeutscheMark and Eurodollars.

Successful use of futures contracts by the Fund is also subject to the
ability of the Fund's Manager or Subadviser to predict correctly movements in
the direction of markets and other factors affecting currencies generally. For
example, if the Fund has hedged against the possibility of an increase in the
price of securities in its portfolio and price of such securities increases

B-8
<PAGE>
instead, the Fund will lose part or all of the benefit of the increased value of
its securities because it will have offsetting losses in its futures positions.
In addition, in such situations, if the Fund has insufficient cash to meet daily
variation margin requirements, it may need to sell securities to meet such
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Fund may have to sell
securities at a time when it is disadvantageous to do so.

The hours of trading of futures contracts may not conform to the hours
during which the Fund may trade the underlying securities. To the extent that
the futures markets close before the securities markets, significant price and
rate movements can take place in the securities markets that cannot be reflected
in the futures markets.

OPTIONS ON FUTURES CONTRACTS

An option on a futures contract gives the purchaser the right, but not the
obligation, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of the
option is required upon exercise to assume an offsetting futures position (a
short position if the option is a call and a long position if the option is a
put). Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by delivery
of the accumulated cash balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. Currently options are
available with respect to futures contracts on the Australian Dollar, British
Pound, Canadian Dollar, French Franc, Japanese Yen, Swiss Franc, DeutscheMark
and Eurodollar.

The holder or writer of an option may terminate its position by selling or
purchasing an option of the same series. There is no guarantee that such closing
transactions can be effected.

LIMITATIONS ON PURCHASE AND SALE OF OPTIONS ON FOREIGN CURRENCIES AND FUTURES
CONTRACTS ON FOREIGN CURRENCIES

The Fund will write put options on foreign currencies and futures contracts
on foreign currencies only if they are covered by segregating with the Fund's
Custodian an amount of cash or short-term investments equal to the aggregate
exercise price of the puts. The Fund will not (a) write puts having aggregate
exercise prices greater than 25% of total net assets; or (b) purchase (i) put
options on currencies or futures contracts on foreign currencies or (ii) call
options on foreign currencies if, after any such purchase, the aggregate
premiums paid for such options would exceed 10% of the Fund's total net assets.

The Fund intends to engage in futures contracts and options on futures
contracts as a hedge against changes in the value of the currencies to which the
Fund is subject or to which the Fund expects to be subject in connection with
future purchases. The Fund also intends to engage in such transactions when they
are economically appropriate for the reduction of risks inherent in the ongoing
management of the Fund.

POSITION LIMITS

Transactions by the Fund in futures contracts and options will be subject to
limitations, if any, established by each of the exchanges, boards of trade or
other trading facilities (including NASDAQ) governing the maximum number of
options in each class which may be written or purchased by a single investor or
group of investors acting in concert, regardless of whether the options are
written on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of futures contracts and options which the Fund may
write or purchase may be affected by the futures contracts and options written
or purchased by other investment advisory clients of the investment adviser. An
exchange, board of trade or other trading facility may order the liquidations of
positions found to be in excess of these limits, and it may impose certain other
sanctions.

PORTFOLIO TURNOVER

The Fund has no fixed policy with respect to portfolio turnover; however, as
a result of the Fund's investment policies, its portfolio turnover rate may
exceed 100% although it is not expected to exceed 200%. The portfolio turnover
rate is, generally, the percentage computed by dividing the lesser of portfolio
purchases or sales by the average value of the portfolio. To the extent that the
Fund engages in short-term trading in attempting to achieve its objective, it
may increase its turnover rate and incur greater brokerage commissions and other
transaction costs, which are borne directly by the Fund. See "Portfolio
Transactions and Brokerage."

B-9
<PAGE>
LENDING OF PORTFOLIO SECURITIES

The Fund may lend its portfolio securities to broker-dealers, banks or other
recognized institutional borrowers of securities, provided that the borrower at
all times maintains cash or equivalent collateral or secures a letter of credit
in favor of the Fund equal in value to at least 100% of the value of the
securities loaned. During the time portfolio securities are on loan, the
borrower pays the Fund an amount equivalent to any dividends or interest paid on
such securities, and the Fund may invest the cash collateral and earn additional
income, or it may receive an agreed-upon amount of interest income from the
borrower who has delivered equivalent collateral or secured a letter of credit.
Loans are subject to termination at the option of the Fund or the borrower. The
Fund may pay reasonable administrative and custodial fees in connection with a
loan and may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. The Fund does not have
the right to vote securities on loan, but would terminate the loan and regain
the right to vote if that were considered important with respect to the
investment. The Fund does not intend to lend its portfolio securities during the
coming year.

ILLIQUID SECURITIES

The Fund may not invest more than 10% of its net assets in repurchase
agreements which have a maturity of longer than seven days or in other illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market (either within or outside of the United States) or
legal or contractual restrictions on resale. Historically, illiquid securities
have included securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of 1933, as
amended (Securities Act), securities which are otherwise not readily marketable
and repurchase agreements having a maturity of longer than seven days.
Securities which have not been registered under the Securities Act are referred
to as private placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.

In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible securities and corporate bonds and notes. Institutional
investors depend on an efficient institutional market in which the unregistered
security can be readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of such investments.

Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
and foreign securities will expand further as a result of this regulation and
the development of automated systems for the trading, clearance and settlement
of unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc. (the
NASD).

Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The investment adviser will monitor
the liquidity of such restricted securities subject to the supervision of the
Board of Directors. In reaching liquidity decisions, the investment adviser will
consider, INTER ALIA, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (E.G., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer). In addition, in order for commercial paper that is issued in
reliance on Section 4(2) of the Securities Act to be considered liquid, (i) it
must be rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations (NRSRO), or if only one
NRSRO rates the securities, by that NRSRO, or, if unrated, be of comparable
quality in the view of the investment adviser; and (ii) it must not be "traded
flat" (I.E., without accrued interest) or in default as to principal or
interest. Repurchase agreements subject to demand are deemed to have a maturity
equal to the notice period.

B-10
<PAGE>
INVESTMENT RESTRICTIONS

The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. A "majority of the Fund's
outstanding voting securities," when used in this Statement of Additional
Information, means the lesser of (i) 67% of the voting shares represented at a
meeting at which more than 50% of the outstanding voting shares are present in
person or represented by proxy or (ii) more
than 50% of the outstanding voting shares.

The Fund may not:

1. Purchase any security (other than obligations of the U.S. Government,
its agencies or instrumentalities) if as a result with respect to 75% of the
Fund's total assets, more than 5% of the Fund's total assets (taken at current
value) would then be invested in securities of a single issuer.

2. Make short sales of securities except short sales against-the-box (but
the Fund may obtain such short-term credits as may be necessary for the
clearance of transactions).

3. Concentrate its investments in any one industry (no more than 25% of the
Fund's total assets will be invested in any one industry).

4. Issue senior securities, borrow money or pledge its assets, except that
the Fund may borrow up to 20% of the value of its total assets (calculated when
the loan is made) for temporary, extraordinary or emergency purposes or for the
clearance of transactions. The Fund may pledge up to 20% of the value of its
total assets to secure such borrowings. For the purpose of this restriction,
obligations of the Fund to Directors pursuant to deferred compensation
arrangements, the purchase or sale of securities on a when-issued or delayed
delivery basis, the purchase and sale of options, futures contracts and forward
foreign currency exchange contracts and collateral arrangements with respect to
the purchase and sale of options, futures contracts, options on futures
contracts and forward foreign currency exchange contracts are not deemed to be
the issuance of a senior security or a pledge of assets.

5. Purchase any security if as a result the Fund would then hold more than
10% of the outstanding voting securities of any one issuer.

6. Purchase any security if as a result the Fund would then have more than
5% of its total assets (taken at current value) invested in securities of
companies (including predecessors) less than three years old.

7. Buy or sell commodities or commodity contracts or real estate or
interests in real estate except that the Fund may purchase and sell stock index
futures contracts, options thereon and forward foreign currency exchange
contracts and securities which are secured by real estate and securities of
companies which invest or deal in real estate.

8. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain federal securities laws.

9. Make investments for the purpose of exercising control or management.

10. Invest in securities of other investment companies, except by purchases
in the open market involving only customary brokerage commissions and as a
result of which not more than 10% of its total assets (taken at current value)
would be invested in such securities, or except as part of a merger,
consolidation or other acquisition.

11. Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the common stock of companies
which invest in or sponsor such programs.

12. Make loans, except through (i) repurchase agreements and (ii) loans of
portfolio securities (such loans being limited to 10% of the Fund's total
assets). (The purchase of a portion of an issue of securities distributed
publicly, whether or not the purchase is made on the original issuance, is not
considered the making of a loan.)

In order to comply with certain state "blue sky" restrictions, the Fund will
not as a matter of operating policy:

1. Invest in oil, gas and mineral leases.

2. Purchase warrants if as a result the Fund would then have more than 5%
of its net assets (determined at the time of investment) invested in warrants.
Warrants will be valued at the lower of cost or market and investment in
warrants which are not

B-11
<PAGE>
listed on the New York Stock Exchange or American Stock Exchange will be limited
to 2% of the Fund's net assets (determined at the time of investment). For the
purpose of this limitation, warrants acquired in units or attached to securities
are deemed to be without value.

3. Invest in securities of any issuer if, to the knowledge of the Fund, any
officer or Director of the Fund or the Fund's Manager or Subadviser (as defined
below) owns more than 1/2 of 1% of the outstanding securities of such issuer,
and such officers and directors who own more than 1/2 of 1% own in the aggregate
more than 5% of the outstanding securities of such issuer.

4. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, or securities of
issuers which are restricted as to disposition, if more than 15% of its total
assets would be invested in such securities. This restriction shall not apply to
mortgage-backed securities, asset-backed securities or obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.

5. Invest more than 5% of its total assets in securities of unseasoned
issuers, including their predecessors, which have been in operation for less
than three years, and in equity securities of issuers which are not readily
marketable.

6. Purchase securities on margin, except for such short-term credits as are
necessary for the clearance of purchases and sales of portfolio securities.

Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund's assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that the Fund's
asset coverage for borrowings falls below 300%, the Fund will take prompt action
to reduce its borrowings, as required by applicable law.

DIRECTORS AND OFFICERS

<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE WITH FUND DURING PAST FIVE YEARS
- ---------------------------------------------------------------------------------
<S> <C> <C>
Edward D. Beach (70) Director President and Director of BMC Fund,
c/o Prudential Mutual Inc., a closed-end investment
Fund company; formerly Vice Chairman of
Management, Inc. Broyhill Furniture Industries,
One Seaport Plaza Inc.; Certified Public Accountant;
New York, NY Secretary and Treasurer of
Broyhill Family Foundation Inc.;
Member of the Board of Trustees of
Mars Hill College; President and
Director of The High Yield Plus
Fund, Inc. and First Financial
Fund, Inc.; Director of The Global
Government Plus Fund, Inc. and The
Global Total Return Fund, Inc.
Eugene C. Dorsey (68) Director Retired President, Chief Executive
c/o Prudential Mutual Officer and Trustee of the Gannett
Fund Management, Inc. Foundation (now Freedom Forum);
One Seaport Plaza former Publisher of four Gannett
New York, NY newspapers and Vice President of
Gannett Company; past Chairman,
Independent Sector (national
coalition of philanthropic
organizations); former Chairman of
the American Council for the Arts;
Director of the Advisory Board of
Chase Manhattan Bank of Rochester.
Delayne Dedrick Gold Director Marketing and Management
(56) Consultant.
c/o Prudential Mutual
Fund Management, Inc.
One Seaport Plaza
New York, NY
</TABLE>

B-12
<PAGE>

<TABLE>
<CAPTION>
NAME, ADDRESS POSITION PRINCIPAL OCCUPATIONS
AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------------------------------------------------------

<S> <C> <C>
*Harry A. Director Senior Director (since January 1986) of
Jacobs, Jr. (73) Prudential Securities Incorporated
One Seaport (Prudential Securities); formerly
Plaza Interim Chairman and Chief Executive
New York, NY Officer of PMF (June-September 1993);
formerly Chairman of the Board of
Prudential Securities (1982-1985) and
Chairman of the Board and Chief
Executive Officer of Bache Group Inc.
(1977-1982); Director of the Center for
National Policy, The First Australia
Fund, Inc., The First Australia Prime
Income Fund, Inc., The Global
Government Plus Fund, Inc. and The
Global Total Return Fund, Inc.; Trustee
of The Trudeau Institute.

*Lawrence C. President and Vice Chairman of PMF (since 1988);
McQuade (67) Director Managing Director, Investment Banking
One Seaport of Prudential Securities (1988-1991);
Plaza Director, Czech and Slovak American
New York, NY Enterprise Fund (since October 1994),
Quixote Corporation (since February
1992) and BUNZL, PLC (since June 1991);
formerly Director of Crazy Eddie Inc.
(1987-1990) and of Kaiser Tech., Ltd.,
and Kaiser Aluminum and Chemical Corp.
(March 1987-November 1988); formerly
Executive Vice President and Director
of W.R. Grace & Company; President and
Director of The High Yield Income Fund,
Inc., The Global Total Return Fund,
Inc. and The Global Government Plus
Fund, Inc.

Thomas T. Mooney Director President of Greater Rochester Metro
(53) Chamber of Commerce; former Rochester
c/o Prudential City Manager; Trustee of Center for
Mutual Governmental Research, Inc.; Director
Fund Management, of Blue Cross of Rochester, Monroe
Inc. County Water Authority, Rochester Jobs,
One Seaport Inc., Executive Service Corps of
Plaza Rochester, Monroe County Industrial
New York, NY Development Corporation, Northeast
Midwest Institute, First Financial
Fund, Inc., The Global Government Plus
Fund, Inc., The Global Total Return
Fund, Inc. and The High Yield Plus
Fund, Inc.

Thomas H. Director President, O'Brien Associates (financial
O'Brien (70) and management consultants) (since
c/o Prudential April 1984); formerly, President of
Mutual Jamaica Water Securities Corp. (holding
Fund Management, company) (February 1989-August 1990);
Inc. Director (September 1987-April 1991)
One Seaport and Chairman of the Board and Chief
Plaza Executive Officer (September
New York, NY 1987-February 1989) of Jamaica Water
Supply Company; formerly, Director of
TransCanada Pipelines U.S.A. Ltd.
(1984-June 1989) and Winthrop
University Hospital (November 1978-June
1988); Director of Ridgewood Savings
Bank and Yankee Energy System, Inc.;
Secretary and Trustee of Hofstra
University.
</TABLE>

B-13
<PAGE>

<TABLE>
<CAPTION>
NAME, ADDRESS POSITION PRINCIPAL OCCUPATIONS
AND AGE WITH FUND DURING PAST FIVE YEARS
- ------------------------------------------------------------------------
<S> <C> <C>
*Richard A. Director President, Chief Executive Officer and
Redeker (51) Director (since October 1993), PMF;
One Seaport Executive Vice President, Director and
Plaza Member of Operating Committee (since
New York, NY October 1993), Prudential Securities;
Director (since October 1993) of
Prudential Securities Group, Inc.
(PSG); Executive Vice President, The
Prudential Investment Corporation
(since July 1994); Director (since
January 1994) of Prudential Mutual Fund
Distributors, Inc. (PMFD) and
Prudential Mutual Fund Services, Inc.
(PMFS); formerly Senior Executive Vice
President and Director of Kemper
Financial Services, Inc. (September
1978-September 1993); Director of The
Global Government Plus Fund, Inc., The
Global Total Return Fund, Inc. and The
High Yield Income Fund, Inc.
Nancy H. Teeters Director Economist; formerly Vice President and
(64) Chief Economist (March 1986-June 1990)
c/o Prudential of International Business Machines
Mutual Corporation; Member of the Board of
Fund Management, Governors of the Horace H. Rackham
Inc. School of Graduate Studies of the
One Seaport University of Michigan; Director of
Plaza Inland Steel Corporation (since 1991),
New York, NY First Financial Fund, Inc. and The
Global Total Return Fund, Inc.
David W. Drasnin Vice President Vice President and Branch Manager of
(58) Prudential Securities.
39 Public Square
Wilkes-Barre, PA
Robert F. Gunia Vice President Chief Administrative Officer (since July
(48) 1990), Director (since January 1989)
One Seaport and Executive Vice President, Treasurer
Plaza and Chief Financial Officer (since June
New York, NY 1987) of PMF; Senior Vice President
(since March 1987) of Prudential
Securities; Executive Vice President,
Treasurer and Comptroller (since March
1991) of PMFD; Director (since June
1987) of PMFS; Vice President and
Director of The Asia Pacific Fund, Inc.
(since 1989).
S. Jane Rose Secretary Senior Vice President (since January
(49) 1991), Senior Counsel (since June 1987)
One Seaport and First Vice President (June
Plaza 1987-December 1990) of PMF; Senior Vice
New York, NY President and Senior Counsel (since
July 1992) of Prudential Securities;
formerly Vice President and Associate
General Counsel of Prudential
Securities.
Eugene S. Stark Treasurer and First Vice President (since January
(37) Principal 1990) of PMF.
One Seaport Financial and
Plaza Accounting
New York, NY Officer
Deborah A. Docs Assistant Vice President (since January 1993),
(37) Secretary Associate Vice President (January
One Seaport 1990-December 1992) and Assistant
Plaza General Counsel (since November 1991)
New York, NY of PMF; Vice President (since January
1993), Associate Vice President
(January 1992-December 1992) and
Associate General Counsel (since
January 1993) of Prudential Securities.
<FN>
- ------------------------
* "Interested" Director, as defined in the Investment Company Act, by reason of
his affiliation with Prudential Securities or PMF.
</TABLE>

Directors and officers of the Fund are also trustees, directors and officers
of some or all of the other investment companies distributed by Prudential
Securities or Prudential Mutual Fund Distributors, Inc.

B-14
<PAGE>
The officers conduct and supervise the daily business operations of the
Fund, while the Directors, in addition to their functions set forth under
"Manager" and "Distributor," review such actions and decide on general policy.

The Fund pays each of its Directors who is not an affiliated person of PMF
annual compensation of $7,500, in addition to certain out-of-pocket expenses.

Directors may receive their Director's fee pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of such Director's fee in installments which accrue interest at
a rate equivalent to the prevailing rate applicable to 90-day U.S. Treasury
Bills at the beginning of each calendar quarter or, pursuant to an SEC exemptive
order, at the daily rate of return of the Fund. Payment of the interest so
accrued is also deferred and becomes payable at the option of the Director. The
Fund's obligation to make payments of deferred Director's fees, together with
interest thereon, is a general obligation of the Fund. Mr. Dorsey elected to
receive his Director's fee pursuant to a deferred fee agreement with the Fund
for the fiscal year ended December 31, 1994.

The following table sets forth the aggregate compensation paid by the Fund
for the fiscal year ended December 31, 1994 to the Directors who are not
affiliated with the Manager and the aggregate compensation paid to such
Directors for service on the Fund's Board and the Board of any other investment
companies managed by Prudential Mutual Fund Management, Inc. (Fund Complex) for
the calendar year ended December 31, 1994.

COMPENSATION TABLE

<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM FUND
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL AND FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID
NAME AND POSITION FROM FUND EXPENSES RETIREMENT TO DIRECTORS
- ------------------------------------------------- ------------- ----------------- ------------------- -------------
<S> <C> <C> <C> <C>
Edward D. Beach, Director $ 7,500 None N/A $ 159,000(20)**
Eugene C. Dorsey, Director $ 7,500 None N/A $ 61,000*(7)**
Delayne Dedrick Gold, Director $ 7,500 None N/A $ 185,000(24)**
Thomas T. Mooney, Director $ 7,500 None N/A $ 126,000(15)**
Thomas H. O'Brien, Director $ 7,500 None N/A $ 44,000(6)**
Nancy H. Teeters, Director $ 7,500 None N/A $ 95,000(12)**

<FN>

* All compensation for the calendar year ended December 31, 1994 represents
deferred compensation. Aggregate compensation from the Fund for the fiscal
year ended December 31, 1994, including accrued interest, amounted to $7,914.
Aggregate compensation from all of the funds in the Fund Complex for the
calendar year ended December 31, 1994, including accrued interest, amounted
to approximately $63,500.

** Indicates number of funds in Fund Complex (including the Fund) to which
aggregate compensation relates.
</TABLE>

As of January 27, 1995, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding shares of common stock of the Fund.

As of January 27, 1995, the only beneficial owners, directly or indirectly,
of more than 5% of the outstanding shares of any class of common stock of the
Fund were The Foundation for Jewish Philanthropy, James Stovroff Annuity Tr, 787
Delaware Ave., Buffalo, NY 14209-2096, which held 16,891 Class C shares of the
Fund (5.5%); and The Foundation for Jewish Philanthropy, Haskell Stovroff
Annuity Tr, 787 Delaware Ave., Buffalo, NY 14209-2096, which held 16,891 Class C
shares of the Fund (5.5%).

As of January 27, 1995, Prudential Securities was the record holder for
other beneficial owners of 8,780,771 Class A shares (or 39% of the outstanding
Class A shares), 91,372,923 Class B shares (or 61% of the outstanding Class B
shares) and 246,909 Class C shares (or 81% of the outstanding Class C shares) of
the Fund. In the event of any meetings of shareholders, Prudential Securities
will forward, or cause the forwarding of, proxy materials to the beneficial
owners for which it is the record holder.

B-15
<PAGE>
MANAGER

The manager of the Fund is Prudential Mutual Fund Management, Inc. (PMF or
the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as manager
to all of the other investment companies that, together with the Fund, comprise
the Prudential Mutual Funds. See "How the Fund is Managed--Manager" in the
Prospectus. As of January 31, 1995, PMF managed and/or administered open-end and
closed-end management investment companies with assets of approximately $45
billion and, according to the Investment Company Institute, as of August 31,
1994, the Prudential Mutual Funds were the 12th largest family of mutual funds
in the United States.

Pursuant to the Management Agreement with the Fund (the Management
Agreement), PMF, subject to the supervision of the Fund's Board of Directors and
in conformity with the stated policies of the Fund, manages both the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention, disposition and loan of securities. In connection
therewith, PMF is obligated to keep certain books and records of the Fund. PMF
also administers the Fund's corporate affairs and, in connection therewith,
furnishes the Fund with office facilities, together with those ordinary clerical
and bookkeeping services which are not being furnished by State Street Bank and
Trust Company (the Custodian), the Fund's custodian, and Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent), the Fund's transfer and dividend
disbursing agent. The management services of PMF for the Fund are not exclusive
under the terms of the Management Agreement and PMF is free to, and does, render
management services to others.

For its services, PMF receives, pursuant to the Management Agreement, a fee
at an annual rate of .50 of 1% of the Fund's average daily net assets up to and
including $500 million, .475 of 1% of the Fund's average daily net assets from
$500 million to $1 billion and .45 of 1% of the Fund's average daily net assets
in excess of $1 billion. The fee is computed daily and payable monthly. The
Management Agreement also provides that, in the event the expenses of the Fund
(including the fees of PMF, but excluding interest, taxes, brokerage
commissions, distribution fees and litigation and indemnification expenses and
other extraordinary expenses not incurred in the ordinary course of the Fund's
business) for any fiscal year exceed the lowest applicable annual expense
limitation established and enforced pursuant to the statutes or regulations of
any jurisdiction in which the Fund's shares are qualified for offer and sale,
the compensation due to PMF will be reduced by the amount of such excess.
Reductions in excess of the total compensation payable to PMF will be paid by
PMF to the Fund. No such reductions were required during the fiscal year ended
December 31, 1994. Currently, the Fund believes that the most restrictive
expense limitation of state securities commissions is 2 1/2% of the Fund's
average daily net assets up to $30 million, 2% of the next $70 million of such
assets and 1 1/2% of such assets in excess of $100 million.

In connection with its management of the corporate affairs of the Fund, PMF
bears the following expenses:

(a) the salaries and expenses of all of its and the Fund's personnel except
the fees and expenses of Directors who are not affiliated persons of PMF or the
Fund's investment adviser;

(b) all expenses incurred by PMF or by the Fund in connection with managing
the ordinary course of the Fund's business, other than those assumed by the Fund
as described below; and

(c) the costs and expenses payable to The Prudential Investment Corporation
(PIC) pursuant to the subadvisory agreement between PMF and PIC (the Subadvisory
Agreement).

Under the terms of the Management Agreement, the Fund is responsible for the
payment of the following expenses: (a) the fees payable to the Manager, (b) the
fees and expenses of Directors who are not affiliated persons of the Manager or
the Fund's investment adviser, (c) the fees and certain expenses of the
Custodian and Transfer and Dividend Disbursing Agent, including the cost of
providing records to the Manager in connection with its obligation of
maintaining required records of the Fund and of pricing the Fund's shares, (d)
the charges and expenses of legal counsel and independent accountants for the
Fund, (e) brokerage commissions and any issue or transfer taxes chargeable to
the Fund in connection with its securities transactions, (f) all taxes and
corporate fees payable by the Fund to governmental agencies, (g) the fees of any
trade associations of which the Fund may be a member, (h) the cost of stock
certificates representing shares of the Fund, (i) the cost of fidelity and
liability insurance, (j) the fees and expenses involved in registering and
maintaining registration of the Fund and of its shares with the Securities and
Exchange Commission, registering the Fund and qualifying its shares under state
securities laws, including the preparation and printing of the Fund's
registration statements and prospectuses for such purposes, (k) allocable
communications expenses with respect to investor services and all expenses of
shareholders' and Directors' meetings and of preparing,

B-16
<PAGE>
printing and mailing reports, proxy statements and prospectuses to shareholders
in the amount necessary for distribution to the shareholders, (l) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Fund's business and (m) distribution fees.

The Management Agreement provides that PMF will not be liable for any error
of judgment or for any loss suffered by the Fund in connection with the matters
to which the Management Agreement relates, except a loss resulting from willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Management Agreement provides that it will terminate automatically if assigned,
and that it may be terminated without penalty by either party upon not more than
60 days' nor less than 30 days' written notice. The Management Agreement will
continue in effect for a period of more than two years from the date of
execution only so long as such continuance is specifically approved at least
annually in conformity with the Investment Company Act. The Management Agreement
was last approved by the Board of Directors of the Fund, including a majority of
the Directors who are not parties to the contract or interested persons of any
such party as defined in the Investment Company Act, on May 4, 1994 and by
shareholders of the Fund on April 29, 1988.

For the fiscal years ended December 31, 1994, 1993 and 1992, PMF received
management fees of $10,083,085, $8,086,967 and $5,565,827, respectively.

PMF has entered into the Subadvisory Agreement with PIC (the Subadviser).
The Subadvisory Agreement provides that PIC will furnish investment advisory
services in connection with the management of the Fund. In connection therewith,
PIC is obligated to keep certain books and records of the Fund. PMF continues to
have responsibility for all investment advisory services pursuant to the
Management Agreement and supervises PIC's performance of such services. PIC is
reimbursed by PMF for the reasonable costs and expenses incurred by PIC in
furnishing those services.

The Subadvisory Agreement was last approved by the Board of Directors,
including a majority of the Directors who are not parties to the contract or
interested persons of any such party as defined in the Investment Company Act,
on May 4, 1994, and by shareholders of the Fund on April 29, 1988.

The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PMF or PIC upon not more than 60 days' nor less than 30
days' written notice. The Subadvisory Agreement provides that it will continue
in effect for a period of more than two years from its execution only so long as
such continuance is specifically approved at least annually in accordance with
the requirements of the Investment Company Act.

The Manager and the Subadviser are subsidiaries of The Prudential Insurance
Company of America (Prudential) which, as of December 31, 1993, is one of the
largest financial institutions in the world and the largest insurance company in
North America. Prudential has been engaged in the insurance business since 1875.
In July 1994, INSTITUTIONAL INVESTOR ranked Prudential the second largest
institutional money manager of the 300 largest money management organizations in
the United States as of December 31, 1993.

DISTRIBUTOR

Prudential Mutual Fund Distributors, Inc. (PMFD), One Seaport Plaza, New
York, New York 10292, acts as the distributor of the Class A shares of the Fund.
Prudential Securities Incorporated (Prudential Securities or PSI), One Seaport
Plaza, New York, New York 10292, acts as the distributor of the Class B and
Class C shares of the Fund.

Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by the Fund
under Rule 12b-1 under the Investment Company Act and separate distribution
agreements (the Distribution Agreements), PMFD and Prudential Securities
(collectively, the Distributor) incur the expenses of distributing the Fund's
Class A, Class B and Class C shares, respectively. See "How the Fund is
Managed--Distributor" in the Prospectus.

Prior to January 22, 1990, the Fund offered only one class of shares (the
then existing Class B shares). On October 19, 1989, the Board of Directors,
including a majority of the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Class A or Class B Plan or in any agreement related to either Plan (the Rule
12b-1 Directors), at a meeting called for the purpose of voting on each Plan,
adopted a new plan of distribution for the Class A shares of the Fund (the Class
A Plan) and approved an amended and restated plan of distribution with respect
to the Class B shares of the Fund (the Class B Plan). On May 6, 1993, the Board
of Directors, including a majority of the Rule 12b-1 Directors, at a meeting
called for the purpose of voting on each Plan, approved modifications to the
Fund's Class A and Class B

B-17
<PAGE>
Plans and Distribution Agreements to conform them to recent amendments to the
National Association of Securities Dealers, Inc. (NASD) maximum sales charge
rule described below. As so modified, the Class A Plan provides that (i) up to
.25 of 1% of the average daily net assets of the Class A shares may be used to
pay for personal service and the maintenance of shareholder accounts (service
fee) and (ii) total distribution fees (including the service fee of .25 of 1%)
may not exceed .30 of 1%. As so modified, the Class B Plan provides that (i) up
to .25 of 1% of the average daily net assets of the Class B shares may be paid
as a service fee and (ii) up to .75 of 1% (not including the service fee) of the
average daily net assets of the Class B shares (asset-based sales charge) may be
used as reimbursement for distribution-related expenses with respect to the
Class B shares. The Plans were last approved by the Board of Directors,
including a majority of the Rule 12b-1 Directors, on May 4, 1994. The Class A
Plan was approved by the Class A shareholders on December 19, 1990. The Class B
Plan was approved by shareholders of the Fund on January 11, 1990. On May 6,
1993, the Board of Directors, including a majority of the Rule 12b-1 Directors,
at a meeting called for the purpose of voting on each Plan, adopted a plan of
distribution for the Class C shares of the Fund and approved further amendments
to the plans of distribution for the Fund's Class A and Class B shares changing
them from reimbursement type plans to compensation type plans. The Plans were
last approved by the Board of Directors, including a majority of the Rule 12b-1
Directors, on May 4, 1994. The Class A Plan, as amended, was approved by Class A
and Class B shareholders, and the Class B Plan, as amended, was approved by
Class B shareholders on July 19, 1994. The Class C Plan was approved by the sole
shareholder of Class C shares on August 1, 1994.

CLASS A PLAN. For the fiscal year ended December 31, 1994, PMFD received
payments of $636,490 under the Class A Plan. This amount was primarily expended
for payment of account servicing fees to financial advisers and other persons
who sell Class A shares. For the fiscal year ended December 31, 1994, PMFD also
received approximately $1,712,900 in initial sales charges.

CLASS B PLAN. For the fiscal year ended December 31, 1994, Prudential
Securities received approximately $19,019,918 from the Fund under the Class B
Plan and spent approximately $12,148,200 in distributing the Class B shares. It
is estimated that of the latter amount, approximately 2.0% ($236,200) was spent
on printing and mailing of prospectuses to other than current shareholders;
28.3% ($3,434,000) was spent on compensation to Pruco Securities Corporation
(Prusec), an affiliated broker-dealer, for commissions to its representatives
and other expenses, including an allocation on account of overhead and other
branch office distribution-related expenses, incurred by it for distribution of
Class B shares; 3.0% ($365,400) on interest and/or carrying charges; and 66.7%
($8,112,600) was spent on the aggregate of (i) commission credits to Prudential
Securities branch offices, for payments of commissions and account servicing
fees to financial advisers (29.3% or $3,560,400) and (ii) an allocation on
account of overhead and other branch office distribution-related expenses (37.4%
or $4,552,200). The term "overhead and other branch office distribution-related
expenses" represents (a) the expenses of operating the Prudential Securities
branch offices in connection with the sale of Fund shares, including lease
costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery and
supplies, (b) the costs of client sales seminars, (c) expenses of mutual fund
sales coordinators to promote the sale of Fund shares and (d) other incidental
expenses relating to branch promotion of Fund sales.

Prudential Securities also receives the proceeds of contingent deferred
sales charges paid by investors upon certain redemptions of Class B shares. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales Charges"
in the Prospectus. For the fiscal year ended December 31, 1994, Prudential
Securities received approximately $3,369,000 in contingent deferred sales
charges.

CLASS C PLAN. For the period August 1, 1994 (inception of Class C shares)
through December 31, 1994, Prudential Securities received $7,642 from the Fund
under the Class C Plan and spent approximately $26,000 in distributing the
Fund's Class C shares. Prudential Securities also receives the proceeds of
contingent deferred sales charges paid by investors upon certain redemptions of
Class C shares. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges" in the Prospectus. For the period August 1, 1994
(inception of Class C shares) through December 31, 1994, Prudential Securities
received approximately $1,000 in contingent deferred sales charges.

The Class A, Class B and Class C Plans continue in effect from year to year,
provided that each such continuance is approved at least annually by a vote of
the Board of Directors, including a majority vote of the Rule 12b-1 Directors,
cast in person at a meeting called for the purpose of voting on such
continuance. The Plans may each be terminated at any time, without penalty, by
the vote of a majority of the Rule 12b-1 Directors or by the vote of the holders
of a majority of the outstanding shares of the applicable class on not more than
30 days' written notice to any other party to the Plans. The Plans may not be
amended to increase materially the amounts to be spent for the services
described therein without approval by the shareholders of the

B-18
<PAGE>
applicable class (by both Class A and Class B shareholders, voting separately,
in the case of material amendments to the Class A Plan), and all material
amendments are required to be approved by the Board of Directors in the manner
described above. Each Plan will automatically terminate in the event of its
assignment. The Fund will not be contractually obligated to pay expenses
incurred under any Plan if it is terminated or not continued.

Pursuant to each Plan, the Board of Directors will review at least quarterly
a written report of the distribution expenses incurred on behalf of each class
of shares of the Fund by the Distributor. The report includes an itemization of
the distribution expenses and the purposes of such expenditures. In addition, as
long as the Plans remain in effect, the selection and nomination of the Rule
12b-1 Directors shall be committed to the Rule 12b-1 Directors.

Pursuant to each Distribution Agreement, the Fund has agreed to indemnify
PMFD and Prudential Securities to the extent permitted by applicable law against
certain liabilities under the Securities Act of 1933, as amended. Each
Distribution Agreement was last approved by the Board of Directors, including a
majority of the Rule 12b-1 Directors, on May 4, 1994.

NASD MAXIMUM SALES CHARGE RULE. Pursuant to rules of the NASD, the
Distributor is required to limit aggregate initial sales charges, deferred sales
charges and asset-based sales charges to 6.25% of total gross sales of each
class of shares. Interest charges on unreimbursed distribution expenses equal to
the prime rate plus one percent per annum may be added to the 6.25% limitation.
Sales from the reinvestment of dividends and distributions are not included in
the calculation of the 6.25% limitation. The annual asset-based sales charge on
shares of the Fund may not exceed .75 of 1% per class. The 6.25% limitation
applies to each class of the Fund's shareholders rather than on a per
shareholder basis. If aggregate sales charges were to exceed 6.25% of total
gross sales of any class, all sales charges on shares of that class would be
suspended.

On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators in 51 jurisdictions and the NASD to resolve
allegations that PSI sold interests in more than 700 limited partnerships (and a
limited number of other types of securities) from January 1, 1980 through
December 31, 1990, in violation of securities laws to persons for whom such
securities were not suitable in light of the individuals' financial condition or
investment objectives. It was also alleged that the safety, potential returns
and liquidity of the investments had been misrepresented. The limited
partnerships principally involved real estate, oil and gas producing properties
and aircraft leasing ventures. The SEC Order (i) included findings that PSI's
conduct violated the federal securities laws and that an order issued by the SEC
in 1986 requiring PSI to adopt, implement and maintain certain supervisory
procedures had not been complied with; (ii) directed PSI to cease and desist
from violating the federal securities laws and imposed a $10 million civil
penalty; and (iii) required PSI to adopt certain remedial measures including the
establishment of a Compliance Committee of its Board of Directors. Pursuant to
the terms of the SEC settlement, PSI established a settlement fund in the amount
of $330,000,000 and procedures, overseen by a court approved Claims
Administrator, to resolve legitimate claims for compensatory damages by
purchasers of the partnership interests. PSI has agreed to provide additional
funds, if necessary, for that purpose. PSI's settlement with the state
securities regulators included an agreement to pay a penalty of $500,000 per
jurisdiction. PSI consented to a censure and to the payment of a $5,000,000 fine
in settling the NASD action. In settling the above referenced matters, PSI
neither admitted nor denied the allegations asserted against it.

On January 18, 1994, PSI agreed to the entry of a Final Consent Order and a
Parallel Consent Order by the Texas Securities Commissioner. The firm also
entered into a related agreement with the Texas Securities Commissioner. The
allegations were that the firm had engaged in improper sales practices and other
improper conduct resulting in pecuniary losses and other harm to investors
residing in Texas with respect to purchases and sales of limited partnership
interests during the period of January 1, 1980 through December 31, 1990.
Without admitting or denying the allegations, PSI consented to a reprimand,
agreed to cease and desist from future violations, and to provide voluntary
donations to the State of Texas in the aggregate amount of $1,500,000. The firm
agreed to suspend the creation of new customer accounts, the general
solicitation of new accounts, and the offer for sale of securities in or from
PSI's North Dallas office to new customers during a period of twenty consecutive
business days, and agreed that its other Texas offices would be subject to the
same restrictions for a period of five consecutive business days. PSI also
agreed to institute training programs for its securities salesmen in Texas.

On October 27, 1994, Prudential Securities Group, Inc. (PSG) and PSI entered
into agreements with the United States Attorney deferring prosecution (provided
PSI complies with the terms of the agreement for three years) for any alleged
criminal activity related to the sale of certain limited partnership programs
from 1983 to 1990. In connection with these agreements, PSI agreed to add the
sum of $330,000,000 to the fund established by the SEC and executed a
stipulation providing for a reversion of such funds to the United States Postal
Inspection Service. PSI further agreed to obtain a mutually acceptable outside
director to sit on the Board of Directors of PSG and the Compliance Committee of
PSI. The new director will also serve as an independent "ombudsman" whom PSI
employees can call anonymously with complaints about ethics and compliance.
Prudential Securities

B-19
<PAGE>
shall report any allegations or instances of criminal conduct and material
improprieties to the new director. The new director will submit compliance
reports which shall identify all such allegations or instances of criminal
conduct and material improprieties every three months for a three-year period.

PORTFOLIO TRANSACTIONS AND BROKERAGE

The Manager is responsible for decisions to buy and sell securities, options
on such securities and stock indices and stock index futures contracts and
options thereon for the Fund, the selection of brokers, dealers and futures
commission merchants to effect the transactions and the negotiation of brokerage
commissions, if any. For purposes of this section, the term "Manager" includes
the Subadviser. Purchases and sales of securities, options and futures on an
exchange or board of trade are effected through brokers or futures commission
merchants who charge a negotiated commission for their services. Orders may be
directed to any broker or futures commission merchant including, to the extent
and in the manner permitted by applicable law, Prudential Securities and its
affiliates.

In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid. The Fund will not deal with Prudential
Securities in any transaction in which Prudential Securities (or any affiliate)
acts as principal. Thus, it will not deal in over-the-counter securities with
Prudential Securities acting as market maker, and it will not execute a
negotiated trade with Prudential Securities if execution involves Prudential
Securities' acting as principal with respect to any part of the Fund's order.

In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that the Manager will seek to execute each
transaction at a price and commission, if any, which provide the most favorable
total cost or proceeds reasonably attainable in the circumstances. While the
Manager generally seeks reasonably competitive spreads or commissions, the Fund
will not necessarily be paying the lowest spread or commission available. Within
the framework of this policy, the Manager will consider research and investment
services provided by brokers or dealers who effect or are parties to portfolio
transactions of the Fund, the Manager or the Manager's other clients. Such
research and investment services are those which brokerage houses customarily
provide to institutional investors and include statistical and economic data and
research reports on particular companies and industries. Such services are used
by the Manager in connection with all of its investment activities, and some of
such services obtained in connection with the execution of transactions for the
Fund may be used in managing other investment accounts. Conversely, brokers
furnishing such services may be selected for the execution of transactions of
such other accounts, whose aggregate assets are far larger than the Fund, and
the services furnished by such brokers may be used by the Manager in providing
investment management for the Fund. Commission rates are established pursuant to
negotiations with the broker based on the quality and quantity of execution
services provided by the broker in the light of generally prevailing rates. The
Manager is authorized to pay higher commissions on brokerage transactions for
the Fund to brokers other than Prudential Securities in order to secure research
and investment services described above, subject to review by the Fund's Board
of Directors from time to time as to the extent and continuation of this
practice. The allocation of orders among brokers and the commission rates paid
are reviewed periodically by the Fund's Board of Directors. Portfolio securities
may not be purchased from any underwriting or selling syndicate of which
Prudential Securities (or any affiliate), during the existence of the syndicate,
is a principal underwriter (as defined in the Investment Company Act), except in
accordance with rules of the SEC. This limitation, in the opinion of the Fund,
will not significantly affect the Fund's ability to pursue its present
investment objective. However, in the future in other circumstances, the Fund
may be at a disadvantage because of this limitation in comparison to other funds
with similar objectives but not subject to such limitations.

Subject to the above considerations, Prudential Securities may act as a
broker or futures commission merchant for the Fund. In order for Prudential
Securities (or any affiliate) to effect any portfolio transactions for the Fund,
the commissions, fees or other remuneration received by Prudential Securities
(or any affiliate) must be reasonable and fair compared to the commissions, fees
or other remuneration paid to other brokers or futures commission merchants in
connection with comparable transactions involving similar securities or futures
being purchased or sold on an exchange or board of trade during a comparable
period of time. This standard would allow Prudential Securities (or any
affiliate) to receive no more than the remuneration which would be expected to
be received by an unaffiliated broker or futures commission merchant in a
commensurate arms-length transaction. Furthermore, the Board of Directors of the
Fund, including a majority of the non-interested Directors, has adopted
procedures

B-20
<PAGE>
which are reasonably designed to provide that any commissions, fees or other
remuneration paid to Prudential Securities (or any affiliate) are consistent
with the foregoing standard. In accordance with Section 11(a) of the Securities
Exchange Act of 1934, Prudential Securities may not retain compensation for
effecting transactions on a national securities exchange for the Fund unless the
Fund has expressly authorized the retention of such compensation. Section 11(a)
provides that Prudential Securities must furnish to the Fund at least annually a
statement setting forth the total amount of all compensation retained by
Prudential Securities from transactions effected for the Fund during the
applicable period. Brokerage and futures transactions with Prudential Securities
(or any affiliate) are also subject to such fiduciary standards as may be
imposed upon Prudential Securities (or such affiliate) by applicable law.

The table presented below shows certain information regarding the payment of
commissions by the Fund, including the amount of such commissions paid to
Prudential Securities, for the three-year period ended December 31, 1994.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------------
ITEM 1994 1993 1992
- ---------------------------------------- ----------- ----------- ---------
<S> <C> <C> <C>
Total brokerage commissions paid by the
Fund................................... $ 1,314,799 $ 1,616,768 $ 927,127
Total brokerage commissions paid to
Prudential Securities.................. 102,378 351,201 355,900
Percentage of total brokerage
commissions paid to Prudential
Securities............................. 7.8% 21.7% 38.4%
</TABLE>

The Fund effected approximately 8.0% of the total dollar amount of its
transactions involving the payment of commissions through Prudential Securities
during the year ended December 31, 1994. Of the total brokerage commissions paid
during that period, $1,119,331 (or 85%) were paid to firms which provided
research, statistical or other services to the Manager. PMF has not separately
identified a portion of such brokerage commissions as applicable to the
provision of such research, statistical or other services.

PURCHASE AND REDEMPTION OF FUND SHARES

Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan (ii)
each class has exclusive voting rights with respect to its plan (except that the
Fund has agreed with the SEC in connection with the offering of a conversion
feature on Class B shares to submit any amendment of the Class A distribution
and service plan to both Class A and Class B shareholders) and (iii) only Class
B shares have a conversion feature. See "Distributor." Each class also has
separate exchange privileges. See "Shareholder Investment Account--Exchange
Privilege."

SPECIMEN PRICE MAKE-UP

Under the current distribution arrangements between the Fund and the
Distributor, Class A shares of the Fund are sold at a maximum sales charge of 5%
and Class B* and Class C* shares of the Fund are sold at net asset value. Using
the Fund's net asset value at December 31, 1994, the maximum offering price of
the Fund's shares is as follows:

<TABLE>
<S> <C>
CLASS A
Net asset value and redemption price per Class A share................... $ 13.24
Maximum sales charge (5% of offering price).............................. .70
---------
Maximum offering price to public......................................... $ 13.94
---------
---------
CLASS B
Net asset value, offering price and redemption price per Class B
share*.................................................................. $ 13.24
---------
---------
CLASS C
Net asset value, offering price and redemption price per Class C
share*.................................................................. $ 13.24
---------
---------
<FN>

--------------------
* Class B and Class C shares are subject to a contingent deferred sales
charge on certain redemptions. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges" in the Prospectus.
</TABLE>

B-21
<PAGE>
REDUCTION AND WAIVER OF INITIAL SALES CHARGES--CLASS A SHARES

COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential Mutual Funds, the purchases
may be combined to take advantage of the reduced sales charges applicable to
larger purchases. See the table of breakpoints under "Shareholder
Guide--Alternative Purchase Plan" in the Prospectus.

An eligible group of related Fund investors includes any combination of the
following:

(a) an individual;

(b) the individual's spouse, their children and their parents;

(d) any company controlled by the individual (a person, entity or group that
holds 25% or more of the outstanding voting securities of a company will be
deemed to control the company, and a partnership will be deemed to be controlled
by each of its general partners);

(e) a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;

(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and

(g) one or more employee benefit plans of a company controlled by an
individual.

In addition, an eligible group of related Fund investors may include an
employer (or group of related employers) and one or more qualified retirement
plans of such employer or employers (an employer controlling, controlled by or
under common control with another employer is deemed related to that employer).

The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charges will be granted
subject to confirmation of the investor's holdings. The Combined Purchase and
Cumulative Purchase Privilege does not apply to individual participants in any
retirement or group plans.

RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of related
investors, as described above under "Combined Purchase and Cumulative Purchase
Privilege," may aggregate the value of their existing holdings of shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) to determine the
reduced sales charge. However, the value of shares held directly with the
Transfer Agent and through Prudential Securities will not be aggregated to
determine the reduced sales charge. All shares must be held either directly with
the Transfer Agent or through Prudential Securities. The value of existing
holdings for purposes of determining the reduced sales charge is calculated
using the maximum offering price (net asset value plus maximum sales charge) as
of the previous business day. See "How the Fund Values its Shares" in the
Prospectus. The Distributor must be notified at the time of purchase that the
investor is entitled to a reduced sales charge. The reduced sales charges will
be granted subject to confirmation of the investor's holdings. Rights of
Accumulation are not available to individual participants in any retirement or
group plans.

LETTERS OF INTENT. Reduced sales charges are available to investors (or an
eligible group of related investors), including retirement and group plans, who
enter into a written Letter of Intent providing for the purchase, within a
thirteen-month period, of shares of the Fund and shares of other Prudential
Mutual Funds. All shares of the Fund and shares of other Prudential Mutual Funds
(excluding money market funds other than those acquired pursuant to the exchange
privilege) which were previously purchased and are still owned are also included
in determining the applicable reduction. However, the value of shares held
directly with the Transfer Agent and through Prudential Securities will not be
aggregated to determine the reduced sales charge. All shares must be held either
directly with the Transfer Agent or through Prudential Securities. The
Distributor must be notified at the time of purchase that the investor is
entitled to a reduced sales charge. The reduced sales charges will be granted
subject to confirmation of the investor's holdings. Letters of Intent are not
available to individual participants in any retirement or group plans.

A Letter of Intent permits a purchaser to establish a total investment goal
to be achieved by any number of investments over a thirteen-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal, as if it were a single
investment. Escrowed Class A shares totaling 5% of the dollar amount of the
Letter

B-22
<PAGE>
of Intent will be held by the Transfer Agent in the name of the purchaser,
except in the case of retirement and group plans where the employer or plan
sponsor will be responsible for paying any applicable sales charge. The
effective date of a Letter of Intent may be back-dated up to 90 days, in order
that any investments made during this 90-day period, valued at the purchaser's
cost, can be applied to the fulfillment of the Letter of Intent goal, except in
the case of retirement and group plans.

The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the purchaser (or the employer or
plan sponsor in the case of any retirement or group plan) is required to pay the
difference between the sales charge otherwise applicable to the purchases made
during this period and sales charges actually paid. Such payment may be made
directly to the Distributor or, if not paid, the Distributor will liquidate
sufficient escrowed shares to obtain such difference. Investors electing to
purchase Class A shares of the Fund pursuant to a Letter of Intent should
carefully read such Letter of Intent.

WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES

The contingent deferred sales charge is waived under circumstances described
in the Prospectus. See "Shareholder Guide--How to Sell Your Shares--Waiver of
the Contingent Deferred Sales Charges--Class B Shares" in the Prospectus. In
connection with these waivers, the Transfer Agent will require you to submit the
supporting documentation set forth below.

<TABLE>
<CAPTION>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
<S> <C>
Death A copy of the shareholder's death certificate
or, in the case of a trust, a copy of the
grantor's death certificate, plus a copy of
the trust agreement identifying the grantor.

Disability--An individual will be considered A copy of the Social Security Administration
disabled if he or she is unable to engage in award letter or a letter from a physician on
any substantial gainful activity by reason of the physician's letterhead stating that the
any medically determinable physical or mental shareholder (or, in the case of a trust, the
impairment which can be expected to result in grantor) is permanently disabled. The letter
death or to be of long-continued and must also indicate the date of disability.
indefinite duration.

Distribution from an IRA or 403(b) Custodial A copy of the distribution form from the
Account custodial firm indicating (i) the date of
birth of the shareholder and (ii) that the
shareholder is over age 59 1/2 and is taking
a normal distribution--signed by the
shareholder.

Distribution from Retirement Plan A letter signed by the plan
administrator/trustee indicating the reason
for the distribution.

Excess Contributions A letter from the shareholder (for an IRA) or
the plan administrator/trustee on company
letterhead indicating the amount of the
excess and whether or not taxes have been
paid.
</TABLE>

The Transfer Agent reserves the right to request such additional documents
as it may deem appropriate.

QUANTITY DISCOUNT--CLASS B SHARES PURCHASED PRIOR TO AUGUST 1, 1994

The CDSC is reduced on redemptions of Class B shares of the Fund purchased
prior to August 1, 1994 if immediately after a purchase of such shares, the
aggregate cost of all Class B shares of the Fund owned by you in a single
account exceeded $500,000. For example, if you purchased $100,000 of Class B
shares of the Fund and the following year purchase an additional $450,000 of
Class B shares with the result that the aggregate cost of your Class B shares of
the Fund following the second

B-23
<PAGE>
purchase was $550,000, the quantity discount would be available for the second
purchase of $450,000 but not for the first purchase of $100,000. The quantity
discount will be imposed at the following rates depending on whether the
aggregate value exceeded $500,000 or $1 million:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF DOLLARS INVESTED
OR REDEMPTION PROCEEDS
YEAR SINCE PURCHASE --------------------------------------------
PAYMENT MADE $500,001 TO $1 MILLION OVER $1 MILLION
- ------------------------------------------------------------------------- ------------------------- -----------------

<S> <C> <C>
First.................................................................... 3.0% 2.0%

Second................................................................... 2.0% 1.0%

Third.................................................................... 1.0% 0%

Fourth and thereafter.................................................... 0% 0%
</TABLE>

You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to the reduced CDSC. The reduced CDSC will be granted subject to
confirmation of your holdings.

SHAREHOLDER INVESTMENT ACCOUNT

Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which the shares are held for the
investor by the Transfer Agent. If delivery of a stock certificate is desired,
it must be requested in writing for each transaction. Certificates are issued
only for full shares and may be redeposited in the Shareholder Investment
Account at any time. The Fund makes available to the shareholders the following
privileges and plans.

AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS

For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund. An investor
may direct the Transfer Agent in writing not less than 5 full business days
prior to the record date to have subsequent dividends and/or distributions sent
in cash rather than reinvested. In the case of recently purchased shares for
which registration instructions have not been received on the record date, cash
payment will be made directly to the dealer. Any shareholder who receives a cash
payment representing a dividend or distribution may reinvest such distribution
at net asset value by returning the check or the proceeds to the Transfer Agent
within 30 days after the payment date. Such investment will be made at the net
asset value per share next determined after receipt of the check or proceeds by
the Transfer Agent. A shareholder will receive credit for any contingent
deferred sales charge paid in connection with the amount of proceeds being
reinvested.

EXCHANGE PRIVILEGE

The Fund makes available to its shareholders the privilege of exchanging
their shares of the Fund for shares of certain other Prudential Mutual Funds,
including one or more specified money market funds, subject in each case to the
minimum investment requirements of such funds. Shares of such other Prudential
Mutual Funds may also be exchanged for shares of the Fund. All exchanges are
made on the basis of relative net asset value next determined after receipt of
an order in proper form. An exchange will be treated as a redemption and
purchase for tax purposes. Shares may be exchanged for shares of another fund
only if shares of such fund may legally be sold under applicable state laws. For
retirement and group plans having a limited menu of Prudential Mutual Funds, the
Exchange Privilege is available for those funds eligible for investment in this
particular program.

It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.

CLASS A. Shareholders of the Fund may exchange their Class A shares for
Class A shares of certain other Prudential Mutual Funds, shares of Prudential
Government Securities Trust (Intermediate Term Series) and shares of the money
market funds specified below. No fee or sales load will be imposed upon the
exchange. Shareholders of money market funds who acquired such shares upon
exchange of Class A shares may use the Exchange Privilege only to acquire Class
A shares of the Prudential Mutual Funds participating in the Exchange Privilege.

B-24
<PAGE>
The following money market funds participate in the Class A Exchange
Privilege:

Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)
Prudential MoneyMart Assets
Prudential Tax-Free Money Fund

CLASS B AND CLASS C. Shareholders of the Fund may exchange their Class B and
Class C shares for Class B and Class C shares, respectively, of certain other
Prudential Mutual Funds and shares of Prudential Special Money Market Fund, a
money market fund. No CDSC will be payable upon such exchange of Class B shares,
but a CDSC may be payable upon the redemption of the Class B and Class C shares
acquired as a result of an exchange. The applicable sales charge will be that
imposed by the fund in which shares were initially purchased and the purchase
date will be deemed to be the first day of the month after the initial purchase,
rather than the date of the exchange.

Class B and Class C shares of the Fund may also be exchanged for shares of
Prudential Special Money Market Fund without imposition of any CDSC at the time
of exchange. Upon subsequent redemption from such money market fund or after re-
exchange into the Fund, such shares will be subject to the CDSC calculated by
excluding the time such shares were held in the money market fund. In order to
minimize the period of time in which shares are subject to a CDSC, shares
exchanged out of the money market fund will be exchanged on the basis of their
remaining holding periods, with the longest remaining holding periods being
transferred first. In measuring the time period shares are held in a money
market fund and "tolled" for purposes of calculating the CDSC holding period,
exchanges are deemed to have been made on the last day of the month. Thus, if
shares are exchanged into the Fund from a money market fund during the month
(and are held in the Fund at the end of the month), the entire month will be
included in the CDSC holding period. Conversely, if shares are exchanged into a
money market fund prior to the last day of the month (and are held in the money
market fund on the last day of the month), the entire month will be excluded
from the CDSC holding period. For purposes of calculating the seven-year holding
period applicable to the Class B conversion feature, the time period during
which Class B shares were held in a money market fund will be excluded.

At any time after acquiring shares of other funds participating in the Class
B or Class C exchange privilege, a shareholder may again exchange those shares
(and any reinvested dividends and distributions) for Class B or Class C shares
of the Fund, respectively, without subjecting such shares to any CDSC. Shares of
any fund participating in the Class B or Class C exchange privilege that were
acquired through reinvestment of dividends or distributions may be exchanged for
Class B or Class C shares of other funds, respectively, without being subject to
any CDSC.

Additional details about the Exchange Privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Fund's Transfer Agent,
Prudential Securities or Prusec. The Exchange Privilege may be modified,
terminated or suspended on sixty days' notice, and any fund, including the Fund,
or the Distributor, has the right to reject any exchange application relating to
such fund's shares.

DOLLAR COST AVERAGING

Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more shares
when the price is low and fewer shares when the price is high. The average cost
per share is lower than it would be if a constant number of shares were bought
at set intervals.

Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages

B-25
<PAGE>
around $14,000 at a private college and around $4,800 at a public university.
Assuming these costs increase at a rate of 7% a year, as has been projected, for
the freshman class of 2007, the cost of four years at a private college could
reach $163,000 and over $97,000 at a public university.(1)
- ------------------------

(1) Source information concerning the costs of education at public
universities is available from The College Board Annual Survey of Colleges,
1992. Information about the costs of private colleges is from the Digest of
Education Statistics, 1992; The National Center for Educational Statistics;
and the U.S. Department of Education. Average costs for private institutions
include tuition, fees, room and board.

The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals.(2)

<TABLE>
<CAPTION>
PERIOD OF
MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
- -------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
25 Years.................. $ 110 $ 165 $ 220 $ 275
20 Years.................. 176 264 352 440
15 Years.................. 296 444 592 740
10 Years.................. 555 833 1,110 1,388
5 Years.................. 1,371 2,057 2,742 3,428
See "Automatic Savings Accumulation Plan."
</TABLE>

- ------------------------
(2) The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not
intended to reflect the performance of an investment in shares of the Fund.
The investment return and principal value of an investment will fluctuate so
that an investor's shares when redeemed may be worth more or less than their
original cost.

AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP)

Under ASAP, an investor may arrange to have a fixed amount automatically
invested in shares of the Fund monthly by authorizing his or her bank account or
Prudential Securities account (including a Command Account) to be debited to
invest specified dollar amounts in shares of the Fund. The investor's bank must
be a member of the Automatic Clearing House System. Share certificates are not
issued to ASAP participants.

Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.

SYSTEMATIC WITHDRAWAL PLAN

A systematic withdrawal plan is available to shareholders through Prudential
Securities or the Transfer Agent. Such withdrawal plan provides for monthly or
quarterly checks in any amount, except as provided below, up to the value of the
shares in the shareholder's account. Withdrawals of Class B or Class C shares
may be subject to a CDSC. See "Shareholder Guide-- How to Sell Your
Shares--Contingent Deferred Sales Charges" in the Prospectus.

In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and (iii)
the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at net asset
value on shares held under this plan. See "Shareholder Investment Account--
Automatic Reinvestment of Dividends and/or Distributions."

Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may be
terminated at any time, and the Distributor reserves the right to initiate a fee
of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.

Withdrawal payments should not generally be considered as dividends, yield
or income. If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.

B-26
<PAGE>
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must generally be recognized for federal income tax
purposes. Withdrawals made concurrently with purchases of additional shares are
inadvisable because of the sales charge applicable to (i) the purchase of Class
A shares and (ii) the withdrawal of Class B and Class C shares. Each shareholder
should consult his or her own tax adviser with regard to the tax consequences of
the systematic withdrawal plan, particularly if used in connection with a
retirement plan.

TAX-DEFERRED RETIREMENT PLANS

Various tax-deferred retirement plans, including a 401(k) Plan,
self-directed individual retirement accounts and "tax sheltered accounts" under
Section 403(b)(7) of the Internal Revenue Code are available through the
Distributor. These plans are for use by both self-employed individuals and
corporate employers. These plans permit either self-direction of accounts by
participants, or a pooled account arrangement. Information regarding the
establishment of these plans, their administration, custodial fees and other
details are available from Prudential Securities or the Transfer Agent.

Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.

INDIVIDUAL RETIREMENT ACCOUNTS. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account until
the earnings are withdrawn. The following chart represents a comparison of the
earnings in a personal savings account with those in an IRA, assuming a $2,000
annual contribution, and 8% rate of return and a 39.6% federal income tax
bracket and shows how much more retirement income can accumulate within an IRA
as opposed to a taxable individual savings account.
TAX-DEFERRED COMPOUNDING(1)

<TABLE>
<CAPTION>
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
- ------------------------ ---------- ----------
<S> <C> <C>
10 years................ $ 26,165 $ 31,291
15 years................ 44,675 58,649
20 years................ 68,109 98,846
25 years................ 97,780 157,909
30 years................ 135,346 244,692
</TABLE>

- ------------------------
(1) The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated.
Earnings in the IRA account will be subject to tax when withdrawn from the
account.

NET ASSET VALUE

Under the Investment Company Act, the Board of Directors is responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Board of Directors, the value of
investments listed on a securities exchange and NASDAQ National Market System
securities (other than options on stock and stock indices) are valued at the
last sales price on the day of valuation, or, if there was no sale on such day,
the mean between the last bid and asked prices on such day, as provided by a
pricing service. Corporate bonds (other than convertible debt securities) and
U.S. Government securities that are actively traded in the over-the-counter
market, including listed securities for which the primary market is believed to
be over-the-counter, are valued on the basis of valuations provided by a pricing
service which uses information with respect to transactions in bonds, quotations
from bond dealers, agency ratings, market transactions in comparable securities
and various relationships between securities in determining value. Convertible
debt securities that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed to be
over-the-counter, are valued at the mean between the last reported bid and asked
prices provided by principal market makers or independent pricing agents.
Options on stock and stock indices traded on an exchange are valued at the mean
between the most recently quoted bid and asked prices on the respective exchange
and futures contracts and options thereon are valued at their last sales prices
as of the close of the commodities exchange or board of trade. Should an
extraordinary event, which is likely to affect the value of the security, occur
after the close of an exchange on which a portfolio security is traded, such
security will be valued at fair value considering factors determined in good
faith by the investment adviser under procedures established by and under the
general supervision of the Fund's Board of Directors.

B-27
<PAGE>
Securities or other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith by the
Board of Directors. Short-term debt securities are valued at cost, with interest
accrued or discount amortized to the date of maturity, if their original
maturity was 60 days or less, unless this is determined by the Board of
Directors not to represent fair value. Short-term securities with remaining
maturities of 60 days or more, for which market quotations are readily
available, are valued at their current market quotations as supplied by an
independent pricing agent or principal market maker. The Fund will compute its
net asset value at 4:15 P.M., New York time, on each day the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem Fund shares have been received or days on which changes in the value
of the Fund's portfolio securities do not affect net asset value. In the event
the New York Stock Exchange closes early on any business day, the net asset
value of the Fund's shares shall be determined at a time between such closing
and 4:15 P.M., New York time.

Net asset value is calculated separately for each class. The net asset value
of Class B and Class C shares will generally be lower than the net asset value
of Class A shares as a result of the larger distribution-related fee to which
Class B and Class C shares are subject. It is expected, however, that the net
asset value per share of each class will tend to converge immediately after the
recording of dividends which will differ by approximately the amount of the
distribution-related expense accrual differential among the classes.

In the event that the New York Stock Exchange or the national securities
exchanges on which stock options are traded adopt different trading hours on
either a permanent or temporary basis, the Board of Directors of the Fund will
reconsider the time at which net asset value is computed. In addition, the Fund
may compute its net asset value as of any time permitted pursuant to any
exemption, order or statement of the Securities and Exchange Commission or its
staff.

PERFORMANCE INFORMATION

AVERAGE ANNUAL TOTAL RETURN. The Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B and Class C shares. See "How the Fund Calculates
Performance" in the Prospectus.

Average annual total return is computed according to the following formula:

P(1+T)to the power of n = ERV

Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value at the end of the 1, 5 or 10 year
periods (or fractional portion thereof) of a hypothetical
$1,000 payment made at the beginning of the 1, 5 or 10 year
periods.

Average annual total return takes into account any applicable initial or
contingent deferred sales charges but does not take into account any federal or
state income taxes that may be payable upon redemption.

The average annual total return for Class A shares for the one year and
since inception (January 22, 1990) periods ended December 31, 1994 was -2.7% and
11.4%, respectively. The average annual total return for Class B shares of the
Fund for the one, five and ten year periods ended on December 31, 1994 were
- -3.4%, 10.3% and 14.3%, respectively. The average annual total return for Class
C shares for the since inception (August 1, 1994) period ended December 31, 1994
was -1.0%.

AGGREGATE TOTAL RETURN. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B and
Class C shares. See "How the Fund Calculates Performance" in the Prospectus.

Aggregate total return represents the cumulative change in the value of an
investment in the Fund and is computed according to the following formula:

ERV - P
T = -------
P

Where: P = a hypothetical initial payment of $1000.
T = aggregate total return.
ERV = Ending Redeemable Value at the end of the 1, 5 or 10 year
periods (or fractional portion thereof) of a hypothetical
$1,000 payment made at the beginning of the 1, 5 or 10 year
periods.

B-28
<PAGE>
Aggregate total return does not take into account any applicable initial or
contingent deferred sales charges or federal or state income taxes that may be
payable upon redemption or any applicable initial or contingent deferred sales
charges.

The aggregate total return for Class A shares for the one year and since
inception periods ended on December 31, 1994 was 2.4% and 79.5%, respectively.
The aggregate total return for Class B shares for the one, five and ten year
periods ended on December 31, 1994 was 1.60%, 64.1% and 279.1%, respectively.
The aggregate total return for Class C shares for the since inception period
ended December 31, 1994 was 0%.

YIELD. The Fund may from time to time advertise its yield as calculated over
a 30-day period. Yield is calculated separately for Class A, Class B and Class C
shares. This yield will be computed by dividing the Fund's net investment income
per share earned during this 30-day period by the maximum offering price per
share on the last day of this period. Yield is calculated according to the
following formula:

a - b
YIELD = 2[( ------- +1)to the power of 6 - 1]
cd

Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.

Yield fluctuates and an annualized yield quotation is not a representation
by the Fund as to what an investment in the Fund will actually yield for any
given period. The yield for the Class A, Class B and Class C shares for the
30-day period ended December 31, 1994 was 1.68%, 1.04% and 1.04%, respectively.

From time to time, the performance of the Fund may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long term and the rate of inflation.(1)

[CHART]

[LOGO]

(1) Source: Ibbotson Associates, "Stocks, Bonds, Bills and Inflation--1993
Yearbook" (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). Common stock returns are based on the Standard & Poor's 500 Stock
Index, a market-weighted, unmanaged index of 500 common stocks in a variety of
industry sectors. It is a commonly used indicator of broad stock price
movements. This chart is for illustrative purposes only, and is not intended to
represent the performance of any particular investment or fund.

B-29
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES

The Fund intends to declare semi-annual dividends of the Fund's net
investment income. Net capital gains, if any, will be distributed at least
annually. In determining amounts of capital gains to be distributed, any capital
loss carryforwards from prior years will be offset against capital gains.
Distributions will be paid in additional Fund shares based on net asset value,
unless the shareholder elects in writing not less than five full business days
prior to the record date to receive such distributions in cash.

The per share dividends on Class B and Class C shares will be lower than the
per share dividends on Class A shares as a result of the higher
distribution-related fee applicable to the Class B and Class C shares. The per
share distributions of net capital gains, if any, will be paid in the same
amount for Class A, Class B and Class C shares. See "Net Asset Value."

The Fund has qualified and intends to remain qualified as a regulated
investment company under Subchapter M of the Internal Revenue Code. Under
Subchapter M the Fund is not subject to federal income taxes on the taxable
income it distributes to shareholders, provided that it distributes to
shareholders each year at least 90% of its net investment income and net short-
term capital gains in excess of net long-term capital losses, if any.
Qualification as a regulated investment company under the Internal Revenue Code
requires, among other things, that the Fund (a) derive at least 90% of its gross
income from dividends, interest, proceeds from securities loans, and gains from
the sale or other disposition of securities or foreign currencies, or other
income (including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such securities
or currencies; (b) derive less than 30% of its gross income from the sale or
other disposition of securities held less than three months; and (c) diversify
its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
market value of the Fund's assets is represented by cash, U.S. Government
securities and other securities limited, in respect of any one issuer, to an
amount not greater than 5% of the market value of the Fund's assets and 10% of
the outstanding voting securities of such issuer and (ii) not more than 25% of
the value of its assets is invested in the securities of any one issuer (other
than U.S. Government securities). The Fund generally will be subject to a
nondeductible excise tax of 4% to the extent that it does not meet certain
minimum distribution requirements as of the end of each calendar year. The Fund
intends to make timely distributions of the Fund's income in compliance with
these requirements. As a result, it is anticipated that the Fund will not be
subject to the excise tax.

The "straddle" provisions of the Internal Revenue Code may also affect the
taxation of the Fund's transactions in options on securities, stock index
futures and options on futures and limit the deductibility of any loss from the
disposition of a position to the extent of the unrealized gain on any offsetting
position. Further, any position in the straddle (e.g., a put option acquired by
the Fund) may affect the holding period of the offsetting position for purposes
of the 30% of gross income test described above, and accordingly the Fund's
ability to enter into straddles and dispose of the offsetting positions may be
limited.

Gains or losses attributable to fluctuations in exchange rates which occur
between the time the Fund accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities are treated as
ordinary income or ordinary loss. Similarly, gains or losses on disposition of
debt securities denominated in a foreign currency attributable to fluctuations
in the value of the foreign currency between the date of acquisition of the
security and the date of disposition also are treated as ordinary gain or loss.
These gains or losses, referred to under the Internal Revenue Code as "Section
988" gains or losses, increase or decrease the amount of the Fund's investment
company taxable income available to be distributed to its shareholders as
ordinary income, rather than increasing or decreasing the amount of the Fund's
net capital gain. If Section 988 losses exceed other investment company taxable
income during a taxable year, the Fund would not be able to make any taxable
ordinary dividend distributions, or distributions made before the losses were
realized would be recharacterized as a return of capital to shareholders, rather
than as an ordinary dividend, reducing each shareholder's basis in his or her
shares.

Any loss realized on a sale, redemption or exchange of shares of the Fund by
a shareholder will be disallowed to the extent the shares are replaced within a
61-day period (beginning 30 days before the disposition of shares). Shares
purchased pursuant to the reinvestment of a dividend will constitute a
replacement of shares.

A shareholder who acquires shares of the Fund and sells or otherwise
disposes of such shares within 90 days of acquisition may not be allowed to
include certain sales charges incurred in acquiring such shares for purposes of
calculating gain or loss realized upon a sale or exchange of shares of the Fund.

B-30
<PAGE>
PENNSYLVANIA PERSONAL PROPERTY TAX. The Fund has received a written letter
of determination from the Pennsylvania Department of Revenue that the Fund will
be subject to the Pennsylvania foreign franchise tax. Accordingly, it is
believed that Fund shares are exempt from Pennsylvania personal property taxes.
The Fund anticipates that it will continue such business activities but reserves
the right to suspend them at any time, resulting in the termination of the
exemption.

OTHER TAX INFORMATION. The Fund may also be subject to state or local tax in
certain other states where it is deemed to be doing business. Further, in those
states which have income tax laws, the tax treatment of the Fund and of
shareholders of the Fund with respect to distributions by the Fund may differ
from federal tax treatment. Distributions to shareholders may be subject to
additional state and local taxes. Shareholders are advised to consult their own
tax advisers regarding specific questions as to federal, state or local taxes.

CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
AND INDEPENDENT ACCOUNTANTS

State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and in that capacity maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. Subcustodians provide custodial
services for the Fund's foreign assets held outside the United States.

Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of the Fund.
It is a wholly-owned subsidiary of PMF. PMFS provides customary transfer agency
services to the Fund, including the handling of shareholder communications, the
processing of shareholder transactions, the maintenance of shareholder account
records, payment of dividends and distributions, and related functions. For
these services, PMFS receives an annual fee per shareholder account, a new
account set-up fee for each manually established account and a monthly inactive
zero balance account fee per shareholder account. PMFS is also reimbursed for
its out-of-pocket expenses, including but not limited to postage, stationery,
printing, allocable communications expenses and other costs. For the fiscal year
ended December 31, 1994, the Fund incurred fees of $2,755,000 for the services
of PMFS.

Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036
serves as the Fund's independent accountants and in that capacity audits the
Fund's annual financial statements.

B-31
<PAGE>
PRUDENTIAL EQUITY FUND, INC. Portfolio of Investments
December 31, 1994
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
LONG-TERM INVESTMENTS--93.0%
Common Stocks--91.9%
Aerospace/Defense--3.5%
207,800 Lockheed Corp............... $ 15,091,475
870,000 Loral Corp.................. 32,951,250
500,000 United Technologies Corp.... 31,437,500
------------
79,480,225
------------
Automobiles & Trucks--4.6%
1,000,000 Chrysler Corp............... 49,000,000
800,000 Ford Motor Co............... 22,400,000
600,000 General Motors Corp......... 25,350,000
404,800 Navistar International
Corp.*.................... 6,122,600
------------
102,872,600
------------
Banks & Financial Services--13.0%
1,800,000 American Express Co......... 53,100,000
800,000 American General Corp....... 22,600,000
700,000 Bank of New York Co.,
Inc....................... 20,300,000
500,000 BankAmerica Corp............ 19,750,000
600,000 Chase Manhattan Corp........ 20,625,000
600,000 Comerica, Inc............... 14,625,000
1,000,000 Dean Witter Discover &
Co........................ 33,875,000
177,000 First America Bank Corp..... 5,310,000
1,000,000 Great Western Financial
Corp...................... 16,000,000
800,000 Lehman Brothers Holdings,
Inc....................... 11,800,000
292,505 Mellon Bank Corp............ 8,957,965
256,500 Mercantile Bankshares
Corp...................... 5,033,812
250,000 Morgan (J.P.) & Co., Inc.... 14,000,000
300,000 NationsBank Corp............ 13,537,500
225,000 Republic New York Corp...... 10,181,250
600,000 Salomon, Inc................ 22,500,000
------------
292,195,527
------------
Chemicals--1.7%
555,500 IMC Fertilizer Group,
Inc....................... 24,025,375
500,000 Wellman, Inc................ 14,125,000
------------
38,150,375
------------
Commercial Services--0.4%
600,000 AAR Corp.................... $ 8,025,000
------------
Computer Hardware--9.5%
800,000 Amdahl Corp................. 8,800,000
800,000 Comdisco, Inc............... 18,500,000
2,300,000 Digital Equipment Corp.*.... 76,475,000
412,900 Gerber Scientific, Inc...... 5,367,700
150,000 Hewlett-Packard Co.......... 14,981,250
300,000 International Business
Machines Corp............. 22,050,000
1,368,300 Tandy Corp.................. 68,586,038
------------
214,759,988
------------
Construction & Housing--0.6%
550,000 Centex Corp................. 12,512,500
------------
Diversified Consumer Products--5.2%
400,000 Eastman Kodak Co............ 19,100,000
750,000 Gibson Greetings, Inc....... 11,062,500
500,000 ITT Corp.................... 44,312,500
500,000 Loews Corp.................. 43,437,500
------------
117,912,500
------------
Drugs & Medical Supplies--3.0%
2,000,000 Baxter International,
Inc....................... 56,500,000
400,000 Upjohn Co................... 12,300,000
------------
68,800,000
------------
Electric Power--0.9%
170,000 American Electric Power,
Inc....................... 5,588,750
570,000 General Public Utilities
Corp...................... 14,962,500
------------
20,551,250
------------
Electronics--1.3%
300,000 Avnet, Inc.................. 11,100,000
15,000 Harris Computer Systems,
Inc....................... 183,750
300,000 Harris Corp................. 12,750,000
145,000 Varian Associates, Inc...... 5,075,000
------------
29,108,750
------------
</TABLE>

B-32 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL EQUITY FUND, INC.
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
Energy Equipment & Services--0.7%
500,000 BJ Services Co.*............ $ 8,437,500
1,300,000 Noram Energy Corp........... 6,987,500
------------
15,425,000
------------
Forest Products--6.9%
400,000 International Paper Co...... 30,150,000
550,000 James River Corp. of
Virginia.................. 11,137,500
125,000 Rayonier, Inc............... 3,812,500
1,600,000 Scott Paper Co.............. 110,600,000
------------
155,700,000
------------
Hospitals--4.6%
649,700 American Medical Holdings,
Inc.*..................... 15,674,013
39,400 Beverly Enterprises,
Inc.*..................... 566,375
400,000 Columbia Healthcare Corp.... 14,600,000
800,000 Foundation Health Corp.*.... 24,800,000
459,500 Hillhaven Corp.*............ 9,764,375
2,665,000 National Medical
Enterprises, Inc.*........ 37,643,125
------------
103,047,888
------------
Insurance--13.3%
1,000,000 Alexander & Alexander
Services, Inc............. 18,500,000
600,000 Chubb Corp.................. 46,425,000
500,000 Citizens Corp............... 8,500,000
2,200,000 Continental Corp............ 41,800,000
406,600 Emphesys Financial Group,
Inc....................... 12,909,550
1,132,700 First Colony Corp........... 25,344,162
127,100 John Alden Financial
Corp...................... 3,654,125
900,828 Old Republic International
Corp...................... 19,142,594
255,500 Providian Corp.............. 7,888,563
700,000 SAFECO Corp................. 36,400,000
350,000 St. Paul Companies, Inc..... 15,662,500
1,153,800 The Equitable Companies,
Inc....................... 20,912,625
700,000 Travelers Corp.............. 22,750,000
1,461,900 Western National Corp....... 18,821,963
------------
298,711,082
------------
Non - Ferrous Metals--3.0%
250,000 Alumax Inc.*................ $ 7,093,750
300,000 Aluminum Company of
America................... 25,987,500
122,750 AMAX Gold, Inc.............. 736,500
1,293,000 Cyprus Minerals Co.......... 33,779,625
------------
67,597,375
------------
Oil & Gas Exploration/Production--7.0%
300,000 Amerada Hess Corp........... 13,687,500
200,000 Atlantic Richfield Co....... 20,350,000
1,100,000 Occidental Petroleum
Corp...................... 21,175,000
1,500,000 Oryx Energy Co.............. 17,812,500
1,530,130 Societe Nationale Elf
Aquitaine
(ADR)(France)*............ 53,937,083
717,640 Total SA, (ADR) (France)*... 21,170,380
504,400 Union Texas Petroleum
Holdings, Inc............. 10,466,300
------------
158,598,763
------------
Retail--6.0%
119,700 Dayton-Hudson Corp.......... 8,468,775
1,100,000 Dillard Department Stores,
Inc....................... 29,425,000
700,000 Federated Department Stores,
Inc.*..................... 13,475,000
2,000,000 K-Mart Corp................. 26,000,000
500,000 Petrie Stores Corp.......... 11,187,500
1,391,900 U.S. Shoe Corp.............. 26,098,125
1,100,000 Waban, Inc.*................ 19,525,000
------------
134,179,400
------------
Specialty Chemicals--0.9%
388,200 Eastman Chemical Co.*....... 19,604,100
100,000 Witco Corp.................. 2,462,500
------------
22,066,600
------------
Steel--0.4%
500,000 Bethlehem Steel Corp.*...... 9,000,000
------------
</TABLE>

B-33 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL EQUITY FUND, INC.
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
Telecommunications--3.5%
1,446,500 Sprint Corp................. $ 39,959,563
1,100,000 Telefonica de Espana, S.A.,
(ADR) (Spain)............. 38,637,500
--------------
78,597,063
--------------
Transportation--1.9%
1,000,000 OMI Corp.................... 6,625,000
550,000 Overseas Shipholding Group,
Inc....................... 12,650,000
1,200,000 Southern Pacific Rail
Corp...................... 21,750,000
--------------
41,025,000
--------------
Total common stocks
(cost $1,820,818,524)..... 2,068,316,886
--------------
Preferred Stocks--1.1%
4,000,000 RJR Nabisco Holdings Corp.
Conv. Pfd. Stock
(cost $25,999,617)........ 24,000,000
--------------
Total long-term investments
(cost $1,846,818,141)..... 2,092,316,886

<CAPTION>
Principal
Amount
(000) SHORT-TERM INVESTMENT--7.1%
- ---------
<C> <S> <C>
Repurchase Agreement
$160,417 Joint Repurchase Agreement
Account, 5.82%, due 1/3/95
(cost $160,417,000; Note
5)........................ 160,417,000
--------------
Total Investments--100.1%
(cost $2,007,235,141; Note
4)........................ 2,252,733,886
Liabilities in excess of
other
assets--(0.1%).............. (2,582,210)
--------------
Net Assets--100%............ $2,250,151,676
--------------
--------------
</TABLE>

- ---------------
* Non-income producing security.
ADR--American Depository Receipt.
B-34 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL EQUITY FUND, INC.
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets December 31, 1994
-----------------
<S> <C>
Investments, at value (cost $2,007,235,141)........................................... $ 2,252,733,886
Cash.................................................................................. 389,193
Dividends and interest receivable..................................................... 4,954,478
Receivable for Fund shares sold....................................................... 4,738,239
Receivable for investments sold....................................................... 351,460
Deferred expenses and other assets.................................................... 18,574
-----------------
Total assets...................................................................... 2,263,185,830
-----------------
Liabilities
Payable for Fund shares reacquired.................................................... 7,690,551
Payable for investments purchased..................................................... 2,191,029
Distribution fee payable.............................................................. 1,685,248
Management fee payable................................................................ 868,456
Accrued expenses...................................................................... 583,373
Deferred Directors' fees.............................................................. 15,497
-----------------
Total liabilities................................................................. 13,034,154
-----------------
Net Assets............................................................................ $ 2,250,151,676
-----------------
-----------------
Net assets were comprised of:
Common stock, at par................................................................ $ 1,699,555
Paid-in capital in excess of par.................................................... 1,945,905,351
-----------------
1,947,604,906
Undistributed net investment income................................................. 47,689,237
Accumulated net realized gain on investments........................................ 9,358,788
Net unrealized appreciation on investments.......................................... 245,498,745
-----------------
Net assets, December 31, 1994......................................................... $ 2,250,151,676
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($276,411,893 / 20,881,953 shares of common stock issued and outstanding)......... $13.24
Maximum sales charge (5.00% of offering price)...................................... .70
-----------------
Maximum offering price to public.................................................... $13.94
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($1,970,579,538 / 148,834,923 shares of common stock issued and outstanding)...... $13.24
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($3,160,245 / 238,684 shares of common stock issued and outstanding).............. $13.24
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
B-35

<PAGE>
PRUDENTIAL EQUITY FUND, INC.
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
December 31,
Net Investment Income 1994
-----------------
Income
<S> <C>
Dividends (net of foreign
withholding taxes of $808,941).... $42,973,993
Interest............................ 13,484,768
------------
Total income...................... 56,458,761
------------
Expenses
Distribution fee--Class A........... 636,490
Distribution fee--Class B........... 19,019,918
Distribution fee--Class C........... 7,642
Management fee...................... 10,083,085
Transfer agent's fees and
expenses............................ 3,390,000
Reports to shareholders............. 1,454,900
Registration fees................... 330,000
Custodian's fees and expenses....... 305,000
Franchise taxes..................... 256,000
Legal fees.......................... 100,000
Insurance expense................... 59,000
Directors' fees..................... 45,000
Audit fee........................... 45,000
Miscellaneous....................... 43,412
------------
Total expenses.................... 35,775,447
------------
Net investment income................. 20,683,314
------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain on investment
transactions........................ 81,494,071
Net change in unrealized
appreciation of investments......... (68,377,840)
------------
Net gain on investments............... 13,116,231
------------
Net Increase in Net Assets
Resulting from Operations............. $33,799,545
------------
------------
</TABLE>

PRUDENTIAL EQUITY FUND, INC.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------------------
Increase in Net Assets 1994 1993
--------------- --------------
<S> <C> <C>
Operations
Net investment
income............ $ 20,683,314 $ 17,238,874
Net realized gain on
investments....... 81,494,071 116,747,891
Net change in
unrealized
appreciation of
investments....... (68,377,840) 183,732,635
--------------- --------------
Net increase in net
assets resulting
from operations... 33,799,545 317,719,400
--------------- --------------
Net equalization
debits.............. 6,402,186 10,311,865
--------------- --------------
Dividends and distributions
(Note 1)
Dividends from net
investment income
Class A........... (4,339,236) (3,388,881)
Class B........... (16,849,152) (13,831,847)
Class C........... (14,701) --
--------------- --------------
(21,203,089) (17,220,728)
--------------- --------------
Distributions from
net realized
capital gains
Class A........... (12,591,770) (11,075,863)
Class B........... (91,043,748) (85,590,180)
Class C........... (95,226) --
--------------- --------------
(103,730,744) (96,666,043)
--------------- --------------
Fund share transactions (Note 6)
Proceeds from shares
sold.............. 1,454,763,135 1,246,554,009
Net asset value of
shares issued in
reinvestment of
dividends and
distributions..... 117,059,026 107,310,518
Cost of shares
reacquired........ (1,264,107,170) (881,414,705)
--------------- --------------
Net increase in net
assets from Fund
share
transactions...... 307,714,991 472,449,822
--------------- --------------
Total increase........ 222,982,889 686,594,316
Net Assets
Beginning of year..... 2,027,168,787 1,340,574,471
--------------- --------------
End of year........... $ 2,250,151,676 $2,027,168,787
--------------- --------------
--------------- --------------
</TABLE>

See Notes to Financial Statements. See Notes to Financial Statements.
B-36
<PAGE>
PRUDENTIAL EQUITY FUND, INC.
Notes to Financial Statements
Prudential Equity Fund, Inc. (the ``Fund''), is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The investment objective of the Fund is long-term growth of capital by
investing primarily in common stocks of major established corporations.

Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Fund in the preparation of
its financial statements.
Securities Valuation: Investments, including options, traded on a national
securities or commodities exchange and NASDAQ National Market equity securities
are valued at the last reported sales price on the primary exchange on which
they are traded. Securities traded in the over-the-counter market (including
securities listed on exchanges whose primary market is believed to be
over-the-counter) and listed securities for which no sale was reported on that
date are valued at the mean between the last reported bid and asked prices.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost which approximates market value.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian or designated
subcustodians, as the case may be under triparty repurchase agreements, take
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction, including accrued interest.
If the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
All securities are valued as of 4:15 P.M., New York time.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date, and interest income is recorded on the accrual basis.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
Dividends and Distributions: Dividends from net investment income are declared
and paid semi-annually. The Fund will distribute at least annually net capital
gains in excess of loss carryforwards, if any. Dividends and distributions are
recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Equalization: The Fund follows the accounting practice known as equalization by
which a portion of the proceeds from sales and costs of reacquisitions of Fund
shares, equivalent on a per share basis to the amount of distributable net
investment income on the date of the transaction, is credited or charged to
undistributed net investment income. As a result, undistributed net investment
income per share is unaffected by sales or reacquisitions of the Fund's shares.
Taxes: It is the Fund's policy to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable net income and net capital gains, if any, to its
shareholders. Therefore, no federal income tax provision is required.
Withholding taxes on foreign dividends have been provided for in accordance
with the Fund's understanding of the applicable country's tax rules and rates.

Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation (``PIC''); PIC furnishes investment advisory services in
connection with the management of the Fund. PMF pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .50 of 1% of the Fund's average daily net assets up to $500
million, .475 of 1% of the next $500 million of average daily net assets and .45
of 1% of the Fund's average daily net assets in excess of $1 billion.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the
B-37

<PAGE>
distributor of the Class A shares of the Fund, and with Prudential Securities
Incorporated (``PSI''), which acts as distributor of the Class B shares of the
Fund (collectively the ``Distributors''). To reimburse the Distributors for
their expenses incurred in distributing the Fund's Class A and Class B shares,
the Fund, pursuant to plans of distribution, pays the Distributors a
reimbursement accrued daily and payable monthly.
On July 19, 1994, shareholders of the Fund approved amendments to the Class A
and Class B distribution plans under which the distribution plans became
compensation plans, effective August 1, 1994. Prior thereto, the distribution
plans were reimbursement plans, under which PMFD and PSI were reimbursed for
expenses actually incurred by them up to the amount permitted under the Class A
and Class B Plans, respectively. The Fund is not obligated to pay any prior or
future excess distribution costs (costs incurred by the Distributors in excess
of distribution fees paid by the Fund or contingent deferred sales charges
received by the Distributors). The rate of the distribution fees charged to
Class A and Class B shares of the Fund did not change under the amended plan of
distribution. The Fund began offering Class C shares on August 1, 1994.
Pursuant to the Class A Plan, the Fund compensates PMFD for its expenses with
respect to Class A shares at an annual rate of up to .30 of 1% of the average
daily net assets of the Class A shares. Such expenses under the Class A Plan
were .25 of 1% of the average daily net assets of the Class A shares for the
year ended December 31, 1994.
Pursuant to the Class B and Class C Plans, the Fund compensates PSI for its
distribution-related expenses with respect to Class B and Class C shares at an
annual rate of up to 1% of the average daily net assets of the Class B and Class
C shares, respectively.
PMFD has advised the Fund that it has received approximately $1,712,900 in
front-end sales charges resulting from sales of Class A shares during the year
ended December 31, 1994. From these fees, PMFD paid such sales charges to
dealers (PSI and Prusec) which in turn paid commissions to salespersons.
PSI advised the Fund that for the year ended December 31, 1994, it received
approximately $3,369,800 in contingent deferred sales charges imposed upon
certain redemptions by investors.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.

Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent and
during the year ended December 31, 1994, the Fund incurred fees of approximately
$2,755,000 for the services of PMFS. As of December 31, 1994, $238,000 of such
fees were due to PMFS. Transfer agent fees and expenses in the Statement of
Operations include certain out-of-pocket expenses paid to non-affiliates.
For the year ended December 31, 1994, PSI earned approximately $102,300 in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.

Note 4. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments, for the year ended
December 31, 1994 aggregated $636,556,787 and $217,257,759, respectively.
The federal income tax basis of the Fund's investments at December 31, 1994
was substantially the same as for financial reporting purposes and, accordingly,
net unrealized appreciation for federal income tax purposes was $245,498,745
(gross unrealized appreciation--$368,627,573; gross unrealized
depreciation--$123,128,828).

Note 5. Joint The Fund, along with other
Repurchase affiliated registered invest-
Agreement Account ment companies, transfers
uninvested cash balances into a single joint
account, the daily aggregate balance of which is invested in one or more
repurchase agreements collateralized by U.S. Treasury or Federal agency
obligations. As of December 31, 1994, the Fund has a 20.83% undivided interest
in the joint account. The undivided interest for the Fund represents
$160,417,000 in the principal amount. As of such date, each repurchase agreement
in the joint account and the collateral therefor were as follows:
Goldman Sachs & Co., 5.75%, in the principal amount of $250,000,000,
repurchase price $250,159,722, due 1/3/95. The value of the collateral including
accrued interest is $255,000,108.
Lehman Government Securities, Inc., 5.90%, in the principal amount of
$70,000,000, repurchase price $70,045,889, due 1/3/95. The value of the
collateral including accrued interest is $71,379,084.
Morgan Stanley & Co., 5.75%, in the principal amount of $250,000,000,
repurchase price $250,159,722, due
B-38

<PAGE>
1/3/95. The value of the collateral including accrued interest is $255,146,220.
Smith Barney Inc., 5.95%, in the principal amount of $200,000,000, repurchase
price $200,132,222, due 1/3/95. The value of the collateral including accrued
interest is $204,036,161.

Note 6. Capital The Fund offers Class A,
Class B and Class C shares. Class A shares are
sold with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately seven
years after purchase commencing in February 1995.
There are 750 million shares of common stock, $.01 par value per share,
dividend into three classes, designated Class A, Class B and Class C common
stock, each of which consists of 250 million authorized shares.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ----------------------------- ---------------- ---------------
<S> <C> <C>
Year ended December 31, 1994:
Shares sold.................. 18,103,878 $ 247,518,724
Shares issued in reinvestment
of dividends and
distributions 1,247,329 16,412,624
Shares reacquired............ (15,323,527) (209,456,746)
---------------- ---------------
Net increase in shares
outstanding................ 4,027,680 $ 54,474,602
---------------- ---------------
---------------- ---------------
Year ended December 31, 1993:
Shares sold.................. 10,666,901 $ 142,866,820
Shares issued in reinvestment
of dividends and
distributions.............. 1,024,585 13,957,895
Shares reacquired............ (6,172,832) (83,163,283)
---------------- ---------------
Net increase in shares
outstanding................ 5,518,654 $ 73,661,432
---------------- ---------------
---------------- ---------------
<CAPTION>
Class B Shares Amount
---------------- ---------------
<S> <C> <C>
Year ended December 31, 1994:
Shares sold.................. 89,556,181 $ 1,203,380,489
Shares issued in reinvestment
of dividends and
distributions.............. 7,818,109 100,544,482
Shares reacquired............ (78,586,261) (1,053,979,338)
---------------- ---------------
Net increase in shares
outstanding................ 18,788,029 $ 249,945,633
---------------- ---------------
---------------- ---------------
Year ended December 31, 1993:
Shares sold.................. 84,220,134 $ 1,103,687,189
Shares issued in reinvestment
of dividends and
distributions.............. 7,009,195 93,352,623
Shares reacquired............ (60,836,074) (798,251,422)
---------------- ---------------
Net increase in shares
outstanding................ 30,393,255 $ 398,788,390
---------------- ---------------
---------------- ---------------
<CAPTION>
Class C
- -----------------------------
<S> <C> <C>
August 1, 1994* through
December 31, 1994:
Shares sold.................. 279,964 $ 3,863,922
Shares issued in reinvestment
of dividends and
distributions.............. 7,877 101,920
Shares reacquired............ (49,158) (671,086)
---------------- ---------------
Net increase in shares
outstanding................ 238,683 $ 3,294,756
---------------- ---------------
---------------- ---------------
</TABLE>

- ---------------
* Commencement of offering of Class C shares.
B-39

<PAGE>
PRUDENTIAL EQUITY FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B
------------------------------------------------------- -----------------------------------------------
January 22,
1990D
Year Ended December 31, through Year Ended December 31,
PER SHARE OPERATING ---------------------------------------- December 31, -----------------------------------------------
PEFORMANCE: 1994 1993 1992 1991 1990 1994 1993 1992 1991
-------- -------- -------- ------- ------------ ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period........... $ 13.80 $ 12.07 $ 11.39 $ 9.84 $ 11.25 $ 13.80 $ 12.08 $ 11.40 $ 9.85
-------- -------- -------- ------- ------------ ---------- ---------- ---------- --------
Income from invest-
ment operations
Net investment
income........... .22 .23 .24 .27 .31 .12 .12 .14 .18
Net realized and
unrealized gain
(loss) on
investment
transactions..... .09 2.42 1.30 2.09 (.15) .09 2.42 1.30 2.09
-------- -------- -------- ------- ------------ ---------- ---------- ---------- --------
Total from
investment
operations..... .31 2.65 1.54 2.36 .16 .21 2.54 1.44 2.27
-------- -------- -------- ------- ------------ ---------- ---------- ---------- --------
Less distributions
Dividends from net
investment
income........... (.22) (.22) (.23) (.24) (.35) (.12) (.12) (.13) (.15)
Distributions from
net
realized capital
gains............ (.65) (.70) (.63) (.57) (1.22) (.65) (.70) (.63) (.57)
-------- -------- -------- ------- ------------ ---------- ---------- ---------- --------
Total
distributions... (.87) (.92) (.86) (.81) (1.57) (.77) (.82) (.76) (.72)
-------- -------- -------- ------- ------------ ---------- ---------- ---------- --------
Net asset value,
end of period.... $ 13.24 $ 13.80 $ 12.07 $ 11.39 $ 9.84 $ 13.24 $ 13.80 $ 12.08 $ 11.40
-------- -------- -------- ------- ------------ ---------- ---------- ---------- --------
-------- -------- -------- ------- ------------ ---------- ---------- ---------- --------
TOTAL RETURN#:..... 2.38% 22.14% 13.65% 24.55% 0.29% 1.60% 21.13% 12.72% 23.55%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000)..... $276,412 $232,535 $136,834 $82,845 $ 30,264 $1,970,580 $1,794,634 $1,203,740 $904,382
Average net assets
(000)............ $254,596 $190,778 $111,489 $57,845 $ 27,371 $1,901,972 $1,522,992 $1,042,028 $757,485
Ratios to average
net
assets:##
Expenses,
including
distribution
fees........... 1.00% .91% .94% .97% 1.01%* 1.75% 1.71% 1.74% 1.77%
Expenses,
excluding
distribution
fees........... .75% .71% .74% .77% .84%* .75% .71% .74% .77%
Net investment
income......... 1.62% 1.71% 1.91% 2.36% 2.86%* .87% .91% 1.11% 1.56%
Portfolio
turnover......... 12% 21% 22% 19% 76% 12% 21% 22% 19%
<CAPTION>
Class C
------------
<S> <C> <C>
August 1,
1994DD
through
PER SHARE OPERATING December 31,
PEFORMANCE: 1990 1994
-------- ------------
<S> <C> <C>
Net asset value,
beginning of
period........... $ 11.83 $14.02
-------- ------
Income from invest-
ment operations
Net investment
income........... .26 .09
Net realized and
unrealized gain
(loss) on
investment
transactions..... (.76) (.10)
-------- ------
Total from
investment
operations..... (.50) (.01)
-------- ------
Less distributions
Dividends from net
investment
income........... (.26) (.12)
Distributions from
net
realized capital
gains............ (1.22) (.65)
-------- ------
Total
distributions... (1.48) (.77)
-------- ------
Net asset value,
end of period.... $ 9.85 $13.24
-------- ------
-------- ------
TOTAL RETURN#:..... (4.28)% .01%
RATIOS/SUPPLEMENTAL
Net assets, end of
period (000)..... $578,213 $3,160
Average net assets
(000)............ $583,016 $1,847
Ratios to average
net
assets:##
Expenses,
including
distribution
fees........... 1.89% 1.83%*
Expenses,
excluding
distribution
fees........... .89% .83%*
Net investment
income......... 2.27% .90%*
Portfolio
turnover......... 76% 12%

<FN>
- ---------------
* Annualized.
D Commencement of offering of Class A shares.
DD Commencement of offering of Class C shares.
# Total return does not consider the effects of sales loads. Total return is calculated assuming a purchase of shares on
the first day and a sale on the last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not annualized.
## Because of the events referred to in DD and the timing of such, the ratios for the Class C shares are not necessarily
comparable to that of Class A or B shares and are not necessarily indicative of future ratios.
</TABLE>
See Notes to Financial Statements.
B-40

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Prudential Equity Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Equity Fund, Inc. (the
``Fund'') at December 31, 1994, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
``financial statements'') are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1994 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 21, 1995
B-41

<PAGE>
Prudential Mutual Funds
Supplement dated July 3, 1995

The following information supplements the prospectuses of each of the Funds
listed on the reverse.

SHAREHOLDER GUIDE

HOW TO BUY SHARES OF THE FUND

Reduction and Waiver of Initial Sales Charges.

PruArray Plans. Class A shares may be purchased at NAV by certain retirement
and deferred compensation plans, qualified or non-qualified under the Internal
Revenue Code of 1986, as amended, (the Code), including pension, profit-sharing,
stock-bonus or other employee benefit plans under Section 401 of the Code and
deferred compensation and annuity plans under Sections 457 and 403(b)(7) of the
Code that participate in the Transfer Agent's PruArray Program (a benefit plan
record keeping service) (hereafter referred to as a PruArray Plan); provided (i)
that the plan has at least $1 million in existing assets or 1,000 eligible
employees or participants and (ii) that Prudential Mutual Funds constitute at
least one-half of the plan's investment options. The term ``existing assets''
for this purpose includes stock issued by a PruArray Plan sponsor and shares of
non-money market Prudential Mutual Funds and shares of certain unaffiliated
non-money market mutual funds that participate in the PruArray Program
(Participating Funds). ``Existing assets'' also include shares of money market
funds acquired by exchange from a Participating Fund. After a PruArray Plan
qualifies to purchase Class A shares at NAV, all subsequent purchases will be
made at NAV.

<PAGE>

Listed below are the names of the Prudential Mutual Funds and the dates of
the prospectuses to which this supplement relates.

<TABLE>
<CAPTION>
Name of Fund Prospectus Date
<S> <C>
Prudential Adjustable Rate Securities Fund, Inc. June 26, 1995
Prudential Allocation Fund September 29, 1994
Prudential Diversified Bond Fund, Inc. January 3, 1995
(as supplemented June 20, 1995)
Prudential Equity Fund, Inc. February 28, 1995
Prudential Equity Income Fund December 30, 1994
Prudential Global Fund, Inc. January 3, 1995
Prudential Global Genesis Fund, Inc. August 1, 1994
Prudential Global Natural Resources Fund, Inc. August 1, 1994
Prudential GNMA Fund, Inc. March 2, 1995
Prudential Government Income Fund, Inc. May 1, 1995
Prudential Growth Opportunity Fund, Inc. February 1, 1995
Prudential High Yield Fund, Inc. February 28, 1995
Prudential IncomeVertible Fund, Inc. March 1, 1995
Prudential Intermediate Global Income Fund, Inc. March 2, 1995
Prudential Multi-Sector Fund, Inc. June 30, 1995
Prudential Pacific Growth Fund, Inc. January 3, 1995
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio January 3, 1995
Short-Term Global Income Fund January 3, 1995
Prudential Structured Maturity Fund, Inc. March 1, 1995
Prudential U.S. Government Fund January 3, 1995
Prudential Utility Fund, Inc. March 1, 1995
The BlackRock Government Income Trust November 1, 1994
(as supplemented December 30, 1994)
Global Utility Fund, Inc. February 1, 1995
Nicholas-Applegate Fund, Inc. March 6, 1995
</TABLE>

MF950C-7

<PAGE>

Prudential Mutual Funds
Supplement dated August 1, 1995

The following information supplements the Statement of Additional
Information of each of the Funds listed below.

MANAGER

Prudential Mutual Fund Management, Inc. (PMF or the Manager), the Manager of
the Fund, is a subsidiary of Prudential Securities Incorporated and The
Prudential Insurance Company of America (Prudential). PMF has three wholly-owned
subsidiaries: Prudential Mutual Fund Distributors, Inc., Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent) and Prudential Mutual Fund
Investment Management, Inc. PMFS serves as the transfer agent for the Prudential
Mutual Funds and, in addition, provides customer service, record keeping and
management and administration services to qualified plans.

Prudential is one of the largest diversified financial services institutions
in the world and, based on total assets, the largest insurance company in North
America as of December 31, 1994. Its primary business is to offer a full range
of products and services in three areas: insurance, investments and home
ownership for individuals and families; health-care management and other benefit
programs for employees of companies and members of groups; and asset management
for institutional clients and their associates. Prudential (together with its
subsidiaries) employs nearly 100,000 persons worldwide, and maintains a sales
force of approximately 19,000 agents, 3,400 insurance brokers and 6,000
financial advisors. It insures or provides other financial services to more than
50 million people worldwide. Prudential is a major issuer of annuities,
including variable annuities. Prudential seeks to develop innovative products
and services to meet consumer needs in each of its business areas.

Investment advisory services are provided to the Fund by a unit of The
Prudential Investment Corporation (PIC or the Subadviser), a subsidiary of
Prudential.

From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
The Wall Street Journal, The New York Times, Barron's and USA Today.

SHAREHOLDER INVESTMENT ACCOUNT

Mutual Fund Programs

From time to time, the Fund (or a portfolio of the Fund, if applicable) may
be included in a mutual fund program with other Prudential Mutual Funds. Under
such a program, a group of portfolios will be selected and thereafter promoted
collectively. Typically, these programs are created with an investment theme,
e.g., to seek greater diversification, protection from interest rate movements
or access to different management styles. In the event such a program is
instituted, there may be a minimum investment requirement for the program as a
whole. The Fund may waive or reduce the minimum initial investment requirements
in connection with such a program.

The mutual funds in the program may be purchased individually or as a part
of the program. Since the allocation of portfolios included in the program may
not be appropriate for all investors, investors should consult their Prudential
Securities Financial Advisor or Prudential/Pruco Securities Representative
concerning the appropriate blend of portfolios for them. If investors elect to
purchase the individual mutual funds that constitute the program in an
investment ratio different from that offered by the program, the standard
minimum investment requirements for the individual mutual funds will apply.

<PAGE>
Prudential Equity Fund, Inc.

Supplement dated September 18, 1995 to
Statement of Additional Information dated February 28, 1995

PURCHASE AND REDEMPTION OF FUND SHARES

Reduction and Waiver of Initial Sales Charges--Class A Shares

Combined Purchase and Cumulative Purchase Privilege. For purposes of the
Combined Purchase and Cumulative Purchase Privilege, an eligible group of
related Fund investors may include (i) a client of a Prudential Securities
financial adviser who gives such financial adviser discretion to purchase the
Prudential Mutual Funds for his or her account only in connection with
participation in a market timing program and for which program Prudential
Securities receives a separate advisory fee or (ii) a client of an unaffiliated
registered investment adviser which is a client of a Prudential Securities
financial adviser, if such unaffiliated adviser has discretion to purchase the
Prudential Mutual Funds for the accounts of his or her customers but only if the
client of such unaffiliated adviser participates in a market timing program
conducted by such unaffiliated adviser; provided such accounts in the aggregate
have assets of at least $15 million invested in the Prudential Mutual Funds.

MF101C-1

<PAGE>

Prudential Mutual Funds
Supplement dated September 29, 1995

The following information supplements the Statement of Additional Information of
each of the Funds listed below.

MANAGER

Prudential Mutual Fund Management, Inc. (PMF or the Manager) serves as the
manager of all of the investment companies that comprise the Prudential Mutual
Funds. As of August 31, 1995, assets of the Prudential Mutual Funds were
approximately $50 billion. The Prudential Investment Corporation (PIC) serves as
the investment adviser for each of the Funds listed below. The unit of PIC which
provides investment advisory services to the Funds is known as Prudential Mutual
Fund Investment Management.

Based on data for the year ended December 31, 1994 for the Prudential Mutual
Funds, on an average day, there are approximately $80 million in common stock
transactions, over $100 million in bond transactions and over $4.1 billion in
money market transactions. In 1994, the Prudential Mutual Funds effected more
than 57,000 trades in money market securities and held on average $21 billion of
money market securities. Based on complex-wide data for the year ended December
31, 1994, on an average day, 7,168 shareholders telephoned Prudential Mutual
Fund Services, Inc., the Transfer Agent of the Prudential Mutual Funds, on the
Prudential Mutual Funds' toll-free number. On an annual basis, that represents
approximately 1.8 million telephone calls and approximately 1.1 million fund
transactions.

PMF is a subsidiary of The Prudential Insurance Company of America
(Prudential), one of the largest diversified financial services institutions in
the world. For the year ended December 31, 1994, Prudential through its
subsidiaries provided financial services to more than 50 million people
worldwide --more than one of every five people in the United States. As of
December 31, 1994, Prudential through its subsidiaries provided automobile
insurance for more than 1.8 million cars and insured more than 1.5 million
homes. For the year ended December 31, 1994, The Prudential Bank, a subsidiary
of Prudential, served 940,000 customers in 50 states providing credit card
services and loans totaling more than $1.2 billion. Assets held by Prudential
Securities Incorporated (PSI) for its clients totaled approximately $150 billion
at December 31, 1994. During 1994, over 28,000 new customer accounts were opened
each month at PSI. The Prudential Real Estate Affiliates, the fourth largest
real estate brokerage network in the United States, has more than 34,000 brokers
and agents and more than 1,100 offices in the United States.

(over)

<PAGE>

Listed below are the names of the Prudential Mutual Funds and the dates of
the Statements of Additional Information to which this supplement relates.

<TABLE>
<CAPTION>
Name of Fund Statement Date
<S> <C>
Prudential Allocation Fund September 29, 1995
Strategy Portfolio
Balanced Portfolio
Prudential California Municipal Fund
California Income Series December 30, 1994
California Series December 30, 1994
Prudential Diversified Bond Fund, Inc. January 3, 1995
Prudential Equity Fund, Inc. February 28, 1995
Prudential Equity Income Fund December 30, 1994
Prudential Europe Growth Fund, Inc. June 30, 1995
Prudential Global Fund, Inc. January 3, 1995
Prudential Global Genesis Fund, Inc. July 31, 1995
Prudential Global Natural Resources Fund, Inc. July 31, 1995
Prudential Government Income Fund, Inc. May 1, 1995
Prudential Government Securities Trust
Short-Intermediate Term Series August 1, 1995
Prudential Growth Opportunity Fund, Inc. February 1, 1995
Prudential High Yield Fund, Inc. February 28, 1995
Prudential Intermediate Global Income Fund, Inc. March 2, 1995
Prudential Mortgage Income Fund, Inc. August 25, 1995
Prudential Multi-Sector Fund, Inc. June 30, 1995
Prudential Municipal Bond Fund June 30, 1995
Insured Series
High Yield Series
Intermediate Series
Prudential Municipal Series Fund
Arizona Series December 30, 1994
Florida Series December 30, 1994
Georgia Series December 30, 1994
Hawaii Income Series March 30, 1995
Maryland Series December 30, 1994
Massachusetts Series December 30, 1994
Michigan Series December 30, 1994
Minnesota Series December 30, 1994
New Jersey Series December 30, 1994
New York Series December 30, 1994
North Carolina Series December 30, 1994
Ohio Series December 30, 1994
Pennsylvania Series December 30, 1994
Prudential National Municipals Fund, Inc. February 28, 1995
Prudential Pacific Growth Fund, Inc. January 3, 1995
Prudential Short Term Global Income Fund, Inc.
Global Assets Portfolio January 3, 1995
Short-Term Global Income Portfolio January 3, 1995
Prudential Structured Maturity Fund, Inc. March 1, 1995
Income Portfolio
Prudential U. S. Government Fund January 3, 1995
Prudential Utility Fund, Inc. March 1, 1995
</TABLE>

MF950C-14

<PAGE>

APPENDIX--PORTFOLIO MANAGERS

The following information supplements only the Statement of Additional
Information of the captioned Fund.

Prudential Allocation Fund (Conservative Portfolio)
Prudential Multi-Sector Fund, Inc.

Gregory Goldberg, serves as the portfolio manager of Prudential Multi-Sector
Fund, Inc. and Prudential Allocation Fund (Conservative Portfolio). In making
equity investments, Mr. Goldberg generally focuses on stocks with a potential
for capital appreciation. He utilizes a ``bottom-up'' approach, selecting stocks
that, in his opinion, have strong fundamentals regardless of industry
performance. He evaluates a company's earnings and balance sheet to find
companies that, in his view, are leaders in their fields and have strong growth
potential. With respect to fixed-income securities, Mr. Goldberg generally
focuses on issues with a potential for total return, selecting securities that,
in his opinion, compare favorably in terms of price and yield relative to
maturity.

Prudential Equity Fund, Inc.

Thomas R. Jackson, has served as the portfolio manager of Prudential Equity
Fund, Inc. (the Fund) since 1990. He utilizes a ``value'' investing style in
managing the Fund. Value investing is a disciplined approach which attempts to
identify strong companies selling at a discount from their perceived true worth.
Mr. Jackson selects stocks for the Fund's portfolio at prices which in his view
are temporarily low relative to the company's earnings, assets, cash flow and
dividends. He may invest in out-of-favor companies as long as they meet his
strict criteria for value: financial soundness and low price relative to
earnings, book value and cash flow.

Prudential Equity Income Fund

Warren Spitz serves as the portfolio manager of Prudential Equity Income
Fund. He utilizes a ``value'' investing style in managing the Fund. Value
investing is a disciplined approach which attempts to identify strong companies
that are selling at a discount from their perceived true worth. Mr. Spitz seeks
to invest in companies that in his view have the potential to produce both
above-average earnings and dividend growth over the long term. These types of
companies are sometimes referred to as ``high dividend stocks.'' He seeks to
invest in securities at prices which in his view are temporarily low relative to
the company's earnings, assets, cash flow and dividends.

Prudential Global Fund, Inc.
Prudential Europe Growth Fund, Inc.
Prudential Pacific Growth Fund, Inc.

Daniel J. Duane, serves as the portfolio manger of Prudential Global Fund,
Inc., Prudential Global Genesis Fund, Inc., Prudential Europe Growth Fund, Inc.,
and Prudential Pacific Growth Fund, Inc. Consistent with the investment
objectives and policies of each Fund, Mr. Duane evaluates the economic climate
in various countries and focuses on growth-oriented global equity investments.
He seeks to identify long-term themes and changing economic conditions that, in
his opinion, will lead to earnings growth. His portfolio management style can be
referred to as ``bottom up'' in that his primary focus is on individual stocks.
He evaluates historical business trends in the United States when looking for
long-term investment opportunities abroad (the ``rear view mirror'' analysis).
In globally-diversified portfolios, the portfolio manager generally maintains
exposure to major world stock markets. Under normal market conditions, the
portfolio manager seeks to keep the portfolios fully invested. Mr. Duane
consults with a team of regional equity analysts who provide research on
existing holdings of each Fund and on potential acquisitions.

Prudential Utility Fund, Inc.

According to data provided by Lipper Analytical Services, Inc., Prudential
Utility Fund, Inc. (the Fund) is among the oldest and largest U.S. mutual funds
in the utility category of mutual funds. David Kiefer, CFA, serves as the
portfolio manager of the Fund and seeks to invest in a broad range of utilities
companies including electric, gas, gas pipeline, telephone communications, water
and cable companies from around the world. Historically, the Fund invested in
traditional types of utility companies--principally, electric, gas and telephone
companies. The portfolio manager seeks to invest in companies that have the
potential for above-average earnings and dividend growth over the long term and
considers such factors as cash flow in selecting portfolio securities.
<PAGE>

APPENDIX--GENERAL INVESTMENT INFORMATION

The following terms are used in mutual fund investing.

Asset Allocation

Asset allocation is a technique for reducing risk, providing balance. Asset
allocation among different types of securities within an overall investment
portfolio helps to reduce risk and to potentially provide stable returns, while
enabling investors to work toward their financial goal(s). Asset allocation is
also a strategy to gain exposure to better performing asset classes while
maintaining investment in other asset classes.

Diversification

Diversification is a time-honored technique for reducing risk, providing
``balance'' to an overall portfolio and potentially achieving more stable
returns. Owning a portfolio of securities mitigates the individual risks (and
returns) of any one security. Additionally, diversification among types of
securities reduces the risks and (general returns) of any one type of security.

Duration

Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.

Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, i.e., principal and interest
rate payments. Duration is expressed as a measure of time in years--the longer
the duration of a bond (or a bond portfolio), the greater the impact of interest
rate changes on the bond's (or the bond portfolio's) price. Duration differs
from effective maturity in that duration takes into account call provisions,
coupon rates and other factors. Duration measures interest rate risk only and
not other risks, such as credit risk and, in the case of non-U.S. dollar
denominated securities, currency risk. Effective maturity measures the final
maturity dates of a bond (or a bond portfolio).

Market Timing

Market timing--buying securities when prices are low and selling them when
prices are relatively higher--may not work for many investors because it is
impossible to predict with certainty how the price of a security will fluctuate.
However, owning a security for a long period of time may help investors offset
short-term price volatility and realize positive returns.

Power of Compounding

Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth of
assets. The long-term investment results of compounding may be greater than that
of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.

<PAGE>

APPENDIX--HISTORICAL PERFORMANCE DATA

The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.

(CHART)

<PAGE>
(CHART)

<PAGE>

Listed below are the names of the Prudential Mutual Funds and the dates of
the Statements of Additional Information to which this supplement relates.

<TABLE>
<S> <C>
Name of Fund Statement Date
Prudential Allocation Fund September 29, 1994
Strategy Portfolio
Conservatively Managed Portfolio
Prudential Equity Fund, Inc. February 28, 1995
Prudential Equity Income Fund December 30, 1994
Prudential Europe Growth Fund, Inc. June 30, 1995
Prudential Global Fund, Inc. January 3, 1995
Prudential Growth Opportunity Fund, Inc. February 1, 1995
Prudential Multi-Sector Fund, Inc. June 30, 1995
Prudential Pacific Growth Fund, Inc. January 3, 1995
Prudential Utility Fund, Inc. March 1, 1995
</TABLE>

MF 950C-11

<PAGE>
PART C
OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

(A) FINANCIAL STATEMENTS:

(1) Financial statements included in the Prospectus constituting Part A of
this Registration Statement:
Financial Highlights

(2) Financial statements included in the Statement of Additional Information
constituting Part B of this Registration Statement:

Portfolio of Investments at December 31, 1994 and the six months
ended June 30, 1995 (unaudited).

Statement of Assets and Liabilities at December 31, 1994 and June
30, 1995 (unaudited).

Statement of Operations for the year ended December 31, 1994 and
the six months ended June 30, 1995 (unaudited).

Statement of Changes in Net Assets for the years ended December
31, 1994 and December 31, 1993 and the six months ended June 30,
1995 (unaudited).

Notes to Financial Statements.

Financial Highlights.

Report of Independent Accountants.

(B) EXHIBITS:

1. Articles of Restatement, incorporated by reference to Exhibit No. 1 to
Post-Effective Amendment No. 19 to the Registration Statement on Form
N-1A filed via EDGAR on February 28, 1995 (File No. 2-75128).

2. By-Laws, incorporated by reference to Exhibit 2(c) to Post-Effective
Amendment No. 17 to the Registration Statement on Form N-1A filed via
EDGAR on May 9, 1994 (File No. 2-75128).

4. (a) Specimen stock certificate for Class B shares issued by the
Registrant, incorporated by reference to Exhibit 4 to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A (File No.
2-75128).

(b) Specimen stock certificate for Class A shares issued by the
Registrant, incorporated by reference to Exhibit 4 to Post-Effective
Amendment No. 12 to the Registration Statement on Form N-1A (File No.
2-75128).

(c) Instruments Defining Rights of Shareholders, incorporated by
reference to Exhibit 4 to Post-Effective Amendment No. 16 to the
Registration Statement on Form N-1A filed via EDGAR on March 2, 1994
(File No. 2-75128).

5. (a) Management Agreement between the Registrant and Prudential Mutual
Fund Management, Inc., incorporated by reference to Exhibit 5(a) to
Post-Effective Amendment No. 9 to the Registration Statement on Form
N-1A (File No. 2-75128).

(b) Subadvisory Agreement between Prudential Mutual Fund Management, Inc.
and The Prudential Investment Corporation, incorporated by reference to
Exhibit 5(b) to Post-Effective Amendment No. 9 to the Registration
Statement on Form N-1A (File No. 2-75128).

6. (a) Selected Dealer Agreement, incorporated by reference to Exhibit 6(b)
to Post-Effective Amendment No. 5 to the Registration Statement on Form
N-1A (File No. 2-75128).

(b) Distribution Agreement for Class A shares, incorporated by reference
to Exhibit No. 6(b) to Post-Effective Amendment No. 19 to the
Registration Statement on Form N-1A filed via EDGAR on February 28, 1995
(File No 2-75128).

C-1
<PAGE>

(c) Distribution Agreement for Class B shares, incorporated by reference
to Exhibit No. 6(c) to Post-Effective Amendment No. 19 to the
Registration Statement on Form N-1A filed via EDGAR on February 28, 1995
(File No 2-75128).

(d) Distribution Agreement for Class C shares, incorporated by reference
to Exhibit No. 6(d) to Post-Effective Amendment No. 19 to the
Registration Statement on Form N-1A filed via EDGAR on February 28, 1995
(File No 2-75128).

(e) Form of Distribution Agreement for Class Z shares.*

8. Custodian Agreement between the Registrant and State Street Bank and
Trust Company, incorporated by reference to Exhibit 8 to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A (File No.
2-75128).

9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc., incorporated by reference to
Exhibit 9(b) to Post-Effective Amendment No. 8 to the Registration
Statement on Form N-1A (File No. 2-75128).

10. Opinion of Sullivan & Cromwell, incorporated by reference to Exhibit 10
to Pre-Effective Amendment No. 2 to the Registration Statement on Form
N-1A (File No. 2-75128).

11. Consent of Independent Accountants.*

13. Investment Representation Letter, incorporated by reference to Exhibit
13 to Pre-Effective Amendment No. 2 to the Registration Statement on
Form N-1A (File No. 2-75128).

15. (a) Distribution and Service Plan for Class A shares, incorporated by
reference to Exhibit No. 15(a) to Post-Effective Amendment No. 19 to the
Registration Statement on Form N-1A filed via EDGAR on February 28, 1995
(File No. 2-75128).

(b) Distribution and Service Plan for Class B shares, incorporated by
reference to Exhibit No. 15(b) to Post-Effective Amendment No. 19 to the
Registration Statement on Form N-1A filed via EDGAR on February 28, 1995
(File No 2-75128).

(c) Distribution and Service Plan for Class C shares, incorporated by
reference to Exhibit No. 15(c) to Post-Effective Amendment No. 19 to the
Registration Statement on Form N-1A filed via EDGAR on February 28, 1995
(File No 2-75128).

(b) Schedule of Computation of Performance Quotations for Class A Shares,
incorporated by reference to Exhibit 16(b) to Post-Effective Amendment
No. 13 to the Registration Statement on Form N-1A (File No. 2-75128).

(c) Schedule of Calculation of Aggregate Total Return for Class A and
Class B shares, incorporated by reference to Exhibit 16(c) to
Post-Effective Amendment No. 15 to the Registration Statement on Form
N-1A (File No. 2-75128).

17. Financial Data Schedules.*

18. Form of Rule 18f-3 Plan.*

- ------------------------
*Filed herewith.

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

No person is controlled by or under common control with the Registrant.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

As of October 13, 1995, there were 117,962, 223,652 and 2,265 record holders
of Class A, Class B and Class C shares of common stock, $.01 par value per
share, issued by the Registrant, respectively.

C-2
<PAGE>
ITEM 27. INDEMNIFICATION.

As permitted by Sections 17(h) and (i) of the Investment Company Act of 1940
(the 1940 Act) and pursuant to Article VI of the Fund's By-Laws (Exhibit 2 to
the Registration Statement), officers, directors, employees and agents of the
Registrant will not be liable to the Registrant, any stockholder, officer,
director, employee, agent or other person for any action or failure to act,
except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
Section 2-418 of Maryland General Corporation Law permits indemnification of
directors who acted in good faith and reasonably believed that the conduct was
in the best interests of the Registrant. As permitted by Section 17(i) of the
1940 Act, pursuant to Section 10 of the Distribution Agreement (Exhibits 6(b),
(c) and (d) to the Registration Statement), the Distributor of the Registrant
may be indemnified against liabilities which it may incur, except liabilities
arising from bad faith, gross negligence, willful misfeasance or reckless
disregard of duties.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (Securities Act) may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised, that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1940 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such director,
officer or controlling person in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1940 Act and will be governed by the final adjudication of such
issue.

The Registrant has purchased an insurance policy insuring its officers and
directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and directors under certain circumstances.

Section 9 of the Management Agreement (Exhibit 5(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(b) to the
Registration Statement) limit the liability of Prudential Mutual Fund
Management, Inc. (PMF) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from reckless
disregard by them of their respective obligations and duties under the
agreements.

The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and each Distribution Agreement in a manner consistent
with Release No. 11330 of the Securities and Exchange Commission under the 1940
Act so long as the interpretation of Sections 17(h) and 17(i) of such Act remain
in effect and are consistently applied.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

(A) PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.

See "How the Fund is Managed -- Manager" in the Prospectus constituting Part
A of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.

The business and other connections of the officers of PMF are listed in
Schedules A and D of Form ADV of PMF as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104, filed on March 30, 1995).

C-3
<PAGE>
The business and other connections of PMF's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is One Seaport Plaza, New York, NY 10292.

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATIONS
- ------------------------- --------------------- ----------------------------------------------------------------
<S> <C> <C>
Brendan D. Boyle Executive Vice Executive Vice President, Director of Marketing and Director,
President, Director PMF; Senior Vice President, Prudential Securities Incorporated
of Marketing and (Prudential Securities); Chairman and Director, Prudential
Director Mutual Fund Distributors, Inc. (PMFD)

Stephen P. Fisher Senior Vice President Senior Vice President, PMF; Senior Vice President, Prudential
Securities; Vice President, PMFD

Frank W. Giordano Executive Vice Executive Vice President, General Counsel, Secretary and
President, General Director, PMF and PMFD; Senior Vice President, Prudential
Counsel, Secretary Securities; Director, Prudential Mutual Fund Services, Inc.
and Director (PMFS)

Robert F. Gunia Executive Vice Executive Vice President, Chief Administrative Officer, Chief
President, Chief Financial Officer, Treasurer and Director, PMF; Senior Vice
Financial and President, Prudential Securities; Executive Vice President,
Administrative Chief Financial Officer, Treasurer and Director, PMFD;
Officer, Treasurer Director, PMFS
and Director

Theresa A. Hamacher Director Director, PMF; Vice President, The Prudential Insurance Company
of America (Prudential); Vice President, The Prudential
Investment Corporation (PIC)

Timothy J. O'Brien Director President, Chief Executive Officer, Chief Operating Officer and
Director, PMFD; Chief Executive Officer and Director, PMFS;
Director, PMF
Richard A. Redeker President, Chief President, Chief Executive Officer and Director, PMF; Executive
Executive Officer and Vice President, Director and Member of Operating Committee,
Director Prudential Securities; Director, Prudential Securities Group,
Inc. (PSG); Executive Vice President, PIC; Director, PMFD;
Director, PMFS
S. Jane Rose Senior Vice Senior Vice President, Senior Counsel and Assistant Secretary,
President, Senior PMF; Senior Vice President and Senior Counsel, Prudential
Counsel and Assistant Securities
Secretary
</TABLE>

(B) THE PRUDENTIAL INVESTMENT CORPORATION (PIC)

The business and other connections of PIC's directors and executive officers
are as set forth below. Except as otherwise indicated, the address of each
person is Prudential Plaza, Newark, NJ 07102.

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- ------------------------- --------------------- ----------------------------------------------------------------
<S> <C> <C>
William M. Bethke Senior Vice President Senior Vice President, Prudential; Senior Vice President, PIC
Two Gateway Center
Newark, NJ 07102
John D. Brookmeyer, Jr. Senior Vice President Senior Vice President, Prudential; Senior Vice President and
51 JFK Parkway and Director Director, PIC
Short Hills, NJ 07078
</TABLE>

C-4
<PAGE>

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- ------------------------- --------------------- ----------------------------------------------------------------
<S> <C> <C>
Barry M. Gillman Director Director, PIC
Theresa A. Hamacher Vice President Vice President, Prudential; Vice President, PIC; Director, PMF
Harry E. Knapp, Jr. President, Chairman President, Chairman of the Board, Director and Chief Executive
of the Board, Officer, PIC; Vice President, Prudential
Director and Chief
Executive Officer
William P. Link Senior Vice President Executive Vice President, Prudential; Senior Vice President, PIC
Four Gateway Center
Newark, NJ 07102
Richard A. Redeker Executive Vice President, Chief Executive Officer and Director, PMF; Executive
One Seaport Plaza President Vice President, Director and Member of Operating Committee,
New York, NY 10292 Prudential Securities; Director, PSG; Executive Vice
President, PIC; Director, PMFD; Director, PMFS
Eric A. Simonson Vice President and Vice President and Director, PIC; Executive Vice President,
Director Prudential
Claude J. Zinngrabe, Jr. Executive Vice Vice President, Prudential; Executive Vice President, PIC
President
</TABLE>

ITEM 29. PRINCIPAL UNDERWRITERS.

(a)(i) Prudential Securities

Prudential Securities is distributor for Prudential Government Securities
Trust (Short-Intermediate Term Series), Prudential Jennison Fund, Inc, and The
Target Portfolio Trust, for Class B shares of Prudential Adjustable Rate
Securities Fund, Inc. and for Class B and Class C shares of Prudential
Allocation Fund, Prudential California Municipal Fund (California Income Series
and California Series), Prudential Diversified Bond Fund, Inc., Prudential
Equity Fund, Inc., Prudential Equity Income Fund, Prudential Europe Growth Fund,
Inc., Prudential Global Fund, Inc., Prudential Global Genesis Fund, Inc.,
Prudential Global Natural Resources Fund, Inc., Prudential Government Income
Fund, Inc., Prudential Growth Opportunity Fund, Inc., Prudential High Yield
Fund, Inc., Prudential Intermediate Global Income Fund, Inc., Prudential
Mortgage Income Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential
Municipal Bond Fund, Prudential Municipal Series Fund (except Connecticut Money
Market Series, Massachusetts Money Market Series, New York Money Market Series
and New Jersey Money Market Series), Prudential National Municipals Fund, Inc.,
Prudential Pacific Growth Fund, Inc., Prudential Short-Term Global Income Fund,
Inc., Prudential Structured Maturity Fund, Inc., Prudential U.S. Government
Fund, Prudential Utility Fund, Inc., Global Utility Fund, Inc., Nicholas-
Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund) and The BlackRock
Government Income Trust. Prudential Securities is also a depositor for the
following unit investment trusts:

Corporate Investment Trust Fund
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust

(ii) Prudential Mutual Fund Distributors, Inc.

Prudential Mutual Fund Distributors, Inc. is distributor for Command
Government Fund, Command Money Fund, Command Tax-Free Fund, Prudential
California Municipal Fund (California Money Market Series), Prudential
Government Securities Trust (Money Market Series and U.S. Treasury Money Market
Series), Prudential Institutional Liquidity Portfolio, Inc., Prudential-Bache
MoneyMart Assets Inc., Prudential Municipal Series Fund (Connecticut Money
Market Series, Massachusetts Money Market Series, New Jersey Money Market Series
and New York Money Market Series), Prudential-Bache Special Money Market Fund,
Inc. (d/b/a Prudential Special Money Market Fund), Prudential-Bache Tax-Free
Money Fund, Inc. (d/b/a Prudential Tax-Free Money Fund), and for Class A shares
of Prudential Adjustable Rate Securities Fund, Inc., Prudential Allocation Fund,
Prudential

C-5
<PAGE>

California Municipal Fund (California Income Series and California Series),
Prudential Diversified Bond Fund, Inc., Prudential Equity Fund, Inc., Prudential
Equity Income Fund, Prudential Europe Growth Fund, Inc., Prudential Global Fund,
Inc., Prudential Global Genesis Fund, Inc., Prudential Global Natural Resources
Fund, Inc., Prudential Government Income Fund, Inc., Prudential Growth
Opportunity Fund, Inc., Prudential High Yield Fund, Inc., Prudential
Intermediate Global Income Fund, Inc., Prudential Mortgage Income Fund, Inc.,
Prudential Multi-Sector Fund, Inc., Prudential Municipal Bond Fund, Prudential
Municipal Series Fund (Arizona Series, Florida Series, Georgia Series, Hawaii
Income Series, Maryland Series, Massachusetts Series, Michigan Series, Minnesota
Series, New Jersey Series, North Carolina Series, Ohio Series and Pennsylvania
Series), Prudential National Municipals Fund, Inc., Prudential Pacific Growth
Fund, Inc., Prudential Short-Term Global Income Fund, Inc., Prudential
Structured Maturity Fund, Inc., Prudential U.S. Government Fund, Prudential
Utility Fund, Inc., Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund) and The BlackRock Government Income
Trust.

(b)(i) Information concerning officers and directors of Prudential
Securities Incorporated is set forth below.

<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(1) UNDERWRITER REGISTRANT
- ------------------------------ --------------------------------------------- --------------
<S> <C> <C>
Robert Golden................. Executive Vice President and Director None
One New York Plaza
New York, NY 10292

Alan D. Hogan................. Executive Vice President, Chief None
Administrative Officer and
Director

George A. Murray.............. Executive Vice President and Director None

Leland B. Paton............... Executive Vice President and Director None
One New York Plaza
New York, NY 10292

Vincent T. Pica, II........... Executive Vice President and Director None
One New York Plaza
New York, NY 10292

Richard A. Redeker............ Executive Vice President and Director President and
Director

Gregory W. Scott.............. Executive Vice President, Chief Financial None
Officer and Director

Hardwick Simmons.............. Chief Executive Officer, President and None
Director

Lee B. Spencer, Jr............ Executive Vice President, Secretary, General None
Counsel and Director

(ii) Information concerning the officers and directors of Prudential Mutual Fund
Distributors, Inc. is set forth below.

Joanne Accurso-Soto........... Vice President None

Dennis Annarumma.............. Vice President, Assistant Treasurer and None
Assistant Comptroller

Phyllis J. Berman............. Vice President None

Brendan D. Boyle.............. Chairman and Director None

Stephen P. Fisher............. Vice President None

Frank W. Giordano............. Executive Vice President, General Counsel, None
Secretary and Director
</TABLE>

C-6
<PAGE>

<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(1) UNDERWRITER REGISTRANT
- ------------------------------ --------------------------------------------- --------------
<S> <C> <C>
Robert F. Gunia............... Executive Vice President, Chief Financial Vice President
Officer, Treasurer and Director

Timothy J. O'Brien............ President, Chief Executive Officer, Chief None
Operating Officer and Director

Richard A. Redeker............ Director Director and
President

Andrew J. Varley.............. Vice President None

Anita L. Whelan............... Vice President and Assistant Secretary None
<FN>
- ------------------------
(1)The address of each person named is One Seaport Plaza, New York, NY 10292
unless otherwise indicated.
</TABLE>

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.

All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices of
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, The Prudential Investment Corporation, Prudential Plaza,
751 Broad Street, Newark, New Jersey 07102, the Registrant, One Seaport Plaza,
New York, New York 10292, and Prudential Mutual Fund Services, Inc., Raritan
Plaza One, Edison, New Jersey 08837. Documents required by Rules 31a-1(b)(5),
(6), (7), (9), (10) and (11) and 31a-1(f) will be kept at 751 Broad Street,
documents required by Rules 31a-1(b)(4) and (11) and 31a-1(d) at One Seaport
Plaza and the remaining accounts, books and other documents required by such
other pertinent provisions of Section 31(a) and the Rules promulgated thereunder
will be kept by State Street Bank and Trust Company and Prudential Mutual Fund
Services, Inc.

ITEM 31. MANAGEMENT SERVICES.

Other than as set forth under the captions "How the Fund is Managed --
Manager" and "How the Fund is Managed -- Distributor" in the Prospectus and the
captions "Manager" and "Distributor" in the Statement of Additional Information,
constituting Parts A and B, respectively, of this Registration Statement,
Registrant is not a party to any management-related service contract.

ITEM 32. UNDERTAKINGS.

The Registrant hereby undertakes to furnish each person to whom a Prospectus
is delivered with a copy of Registrant's latest annual report to shareholders
upon request and without charge.

C-7
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of New York,
and State of New York, on the 25th day of October, 1995.

PRUDENTIAL EQUITY FUND, INC.

/s/ Richard A. Redeker

----------------------------------------------------------------------

(RICHARD A. REDEKER, PRESIDENT)

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------ -----------------
<S> <C> <C>
/s/ Richard A. Redeker President and Director October 25th,
- ----------------------------------- 1995
RICHARD A. REDEKER

/s/ Edward D. Beach Director October 25th,
- ----------------------------------- 1995
EDWARD D. BEACH

/s/ Eugene C. Dorsey Director October 25th,
- ----------------------------------- 1995
EUGENE C. DORSEY

/s/ Delayne D. Gold Director October 25th,
- ----------------------------------- 1995
DELAYNE D. GOLD

/s/ Harry A. Jacobs, Jr. Director October 25th,
- ----------------------------------- 1995
HARRY A. JACOBS, JR.

/s/ Thomas T. Mooney Director October 25th,
- ----------------------------------- 1995
THOMAS T. MOONEY

/s/ Thomas H. O'Brien Director October 25th,
- ----------------------------------- 1995
THOMAS H. O'BRIEN

/s/ Nancy Hays Teeters Director October 25th,
- ----------------------------------- 1995
NANCY HAYS TEETERS

/s/ Eugene S. Stark Principal Financial and October 25th,
- ----------------------------------- Accounting Officer 1995
EUGENE S. STARK
</TABLE>

<PAGE>
EXHIBIT INDEX

2. By-Laws, incorporated by reference to Exhibit 2(c) to Post-Effective
Amendment No. 17 to the Registration Statement on Form N-1A filed via
EDGAR on May 9, 1994 (File No. 2-75128).

6. (a) Selected Dealer Agreement, incorporated by reference to Exhibit 6(b)
to Post-Effective Amendment No. 5 to the Registration Statement on Form
N-1A (File No. 2-75128).

(e) Form of Distribution Agreement for Class Z shares.*

10. Opinion of Sullivan & Cromwell, incorporated by reference to Exhibit 10
to Pre-Effective Amendment No. 2 to the Registration Statement on Form
N-1A (File No. 2-75128).

11. Consent of Independent Accountants.*

13. Investment Representation Letter, incorporated by reference to Exhibit
13 to Pre-Effective Amendment No. 2 to the Registration Statement on
Form N-1A (File No. 2-75128).

16. (a) Schedule of Computation of Performance Quotations for Class B
Shares, incorporated by reference to Exhibit 16 to Post-Effective
Amendment No. 9 to the Registration Statement on Form N-1A (File No.
2-75128).
<PAGE>
(b) Schedule of Computation of Performance Quotations for Class A Shares,
incorporated by reference to Exhibit 16(b) to Post-Effective Amendment
No. 13 to the Registration Statement on Form N-1A (File No. 2-75128).

17. Financial Data Schedules.*

18. Form of Rule 18f-3 Plan.*

- ------------------------
*Filed herewith.

<PAGE>

PRUDENTIAL EQUITY FUND, INC.

Form of
Distribution Agreement
(Class Z Shares)
----------------

Agreement made as of _______, 1995, between Prudential Equity Fund,
Inc., a Maryland Corporation/Massachusetts business trust (the Fund) and
Prudential Securities Incorporated, a Delaware Corporation (the Distributor).

WITNESSETH

WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a [diversified/non-
diversified], open-end, management investment company and it is in the interest
of the Fund to offer its Class Z shares for sale continuously;

WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business of
selling shares of registered investment companies either directly or through
other broker-dealers; and

WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other, with respect to the continuous offering of the Fund's Class Z
shares from and after the date hereof in order to promote the growth of the Fund
and facilitate the distribution of its Class Z shares.

NOW, THEREFORE, the parties agree as follows:

Section 1. APPOINTMENT OF THE DISTRIBUTOR

The Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Class Z shares of the Fund to sell Class Z shares to the
public on behalf of the Fund and the Distributor hereby accepts such appointment
and agrees to act hereunder. The Fund hereby agrees during the term of this
Agreement to sell Class Z shares of the Fund through the Distributor on the
terms and conditions set forth below.

Section 2. EXCLUSIVE NATURE OF DUTIES

The Distributor shall be the exclusive representative of the Fund to
act as principal underwriter and distributor of the Fund's Class Z shares,
except that:

2.1 The exclusive rights granted to the Distributor to sell Class Z
shares of the Fund shall not apply to Class Z shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) of the assets or the outstanding shares
of any such company by the Fund.

<PAGE>

2.2 Such exclusive rights shall not apply to Class Z shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.

2.3 Such exclusive rights shall not apply to Class Z shares issued by
the Fund pursuant to the reinstatement privilege afforded redeeming
shareholders.

2.4 Such exclusive rights shall not apply to purchases made through
the Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean
the Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (the Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.

Section 3. PURCHASE OF CLASS Z SHARES FROM THE FUND

3.1 The Distributor shall have the right to buy from the Fund on
behalf of investors the Class Z shares needed, but not more than the Class Z
shares needed (except for clerical errors in transmission) to fill unconditional
orders for Class Z shares placed with the Distributor by investors or registered
and qualified securities dealers and other financial institutions (selected
dealers).

3.2 The Class Z shares shall be sold by the Distributor on behalf of
the Fund and delivered by the Distributor or selected dealers, as described in
Section 6.4 hereof, to investors at the offering price as set forth in the
Prospectus.

3.3 The Fund shall have the right to suspend the sale of its Class Z
shares at times when redemption is suspended pursuant to the conditions in
Section 4.3 hereof or at such other times as may be determined by the Board of
Directors/Trustees. The Fund shall also have the right to suspend the sale of
its Class Z shares if a banking moratorium shall have been declared by federal
or New York authorities.

3.4 The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class Z shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class Z shares. The Fund (or
its agent) will confirm orders upon their receipt, will make appropriate book
entries and upon receipt by the Fund (or its

2
<PAGE>

agent) of payment therefor, will deliver deposit receipts for such Class Z
shares pursuant to the instructions of the Distributor. Payment shall be made
to the Fund in New York Clearing House funds or federal funds. The Distributor
agrees to cause such payment and such instructions to be delivered promptly to
the Fund (or its agent).

Section 4. REPURCHASE OR REDEMPTION OF CLASS Z SHARES BY THE FUND

4.1 Any of the outstanding Class Z shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class Z
shares so tendered in accordance with its Articles of Incorporation/Declaration
of Trust as amended from time to time, and in accordance with the applicable
provisions of the Prospectus. The price to be paid to redeem or repurchase the
Class Z shares shall be equal to the net asset value determined as set forth in
the Prospectus. All payments by the Fund hereunder shall be made in the manner
set forth in Section 4.2 below.

4.2 The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Class Z shares
shall be paid by the Fund to or for the account of the redeeming shareholder, in
each case in accordance with applicable provisions of the Prospectus.

4.3 Redemption of Class Z shares or payment may be suspended at times
when the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order, so permits.

Section 5. DUTIES OF THE FUND

5.1 Subject to the possible suspension of the sale of Class Z shares
as provided herein, the Fund agrees to sell its Class Z shares so long as it has
Class Z shares available.

5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class Z shares, and this
shall include one certified copy, upon request by the Distributor, of all
financial statements examined for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
Prospectus and annual and interim reports as the

3
<PAGE>

Distributor shall reasonably request.

5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board of Directors/Trustees and the shareholders, all
necessary action to fix the number of authorized Class Z shares and such steps
as may be necessary to register the same under the Securities Act, to the end
that there will be available for sale such number of Class Z shares as the
Distributor reasonably may expect to sell. The Fund agrees to file from time to
time such amendments, reports and other documents as may be necessary in order
that there will be no untrue statement of a material fact in the Registration
Statement, or necessary in order that there will be no omission to state a
material fact in the Registration Statement which omission would make the
statements therein misleading.

5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Class Z shares for sales under
the securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its [Articles of
Incorporation/Declaration of Trust] or By-Laws to comply with the laws of any
state, to maintain an office in any state, to change the terms of the offering
of its Class Z shares in any state from the terms set forth in its Registration
Statement, to qualify as a foreign corporation in any state or to consent to
service of process in any state other than with respect to claims arising out of
the offering of its Class Z shares. Any such qualification may be withheld,
terminated or withdrawn by the Fund at any time in its discretion. As provided
in Section 7.1 hereof, the expense of qualification and maintenance of
qualification shall be borne by the Fund. The Distributor shall furnish such
information and other material relating to its affairs and activities as may be
required by the Fund in connection with such qualifications.

Section 6. DUTIES OF THE DISTRIBUTOR

6.1 The Distributor shall devote reasonable time and effort to effect
sales of Class Z shares of the Fund, but shall not be obligated to sell any
specific number of Class Z shares. Sales of the Class Z shares shall be on the
terms described in the Prospectus. The Distributor may enter into like
arrangements with other investment companies. The Distributor shall compensate
the selected dealers as set forth in the Prospectus.

6.2 In selling the Class Z shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales

4
<PAGE>

literature approved by appropriate officers of the Fund.

6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).

6.4 The Distributor shall have the right to enter into selected
dealer agreements with registered and qualified securities dealers and other
financial institutions of its choice for the sale of Class Z shares, provided
that the Fund shall approve the forms of such agreements. Within the United
States, the Distributor shall offer and sell Class Z shares only to such
selected dealers as are members in good standing of the NASD. Class Z shares
sold to selected dealers shall be for resale by such dealers only at the
offering price determined as set forth in the Prospectus.

Section 7. ALLOCATION OF EXPENSES

7.1 The Fund shall bear all costs and expenses of the continuous
offering of its Class Z shares, including fees and disbursements of its counsel
and auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and preparing and mailing annual and periodic reports and
proxy materials to shareholders (including but not limited to the expense of
setting in type any such Registration Statements, Prospectuses, annual or
periodic reports or proxy materials). The Fund shall also bear the cost of and
expense of qualification of the Class Z shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5.4
hereof.

Section 8. INDEMNIFICATION

8.1 The Fund agrees to indemnify, defend and hold the Distributor,
its officers and Directors and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers, Directors or any such controlling person may incur under the
Securities Act, or under common law or otherwise, arising out of or based upon
any untrue statement of a

5
<PAGE>

material fact contained in the Registration Statement or Prospectus or arising
out of or based upon any alleged omission to state a material fact required to
be stated in either thereof or necessary to make the statements in either
thereof not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by the Distributor to the Fund for use in
the Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any such officer, Director or
controlling person unless a court of competent jurisdiction shall determine in a
final decision on the merits, that the person to be indemnified was not liable
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of Directors who are neither "interested persons"
of the Fund as defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its officers and
Directors and any such controlling person as aforesaid is expressly conditioned
upon the Fund's being promptly notified of any action brought against the
Distributor, its officers or Directors, or any such controlling person, such
notification to be given in writing addressed to the Fund at its principal
business office. The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Directors in connection with the issue and sale of any Class Z shares.

8.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and Directors/Trustees and any person who controls the Fund, if
any, within the meaning of Section 15 of the Securities Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending against such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which the
Fund, its officers and Directors/Trustees or any such controlling person may
incur under the Securities Act or under common law or otherwise, but only to the
extent that such liability or expense incurred by the Fund, its
Directors/Trustees or officers or such controlling person resulting from such
claims or demands shall arise out of or be based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
the Distributor to the Fund for use in the Registration Statement or Prospectus
or shall arise out of or be based upon any alleged omission to state a material
fact in connection with such information required to be stated in the
Registration Statement or

6
<PAGE>

Prospectus or necessary to make such information not misleading. The
Distributor's agreement to indemnify the Fund, its officers and
Directors/Trustees and any such controlling person as aforesaid, is expressly
conditioned upon the Distributor's being promptly notified of any action brought
against the Fund, its officers and Directors/Trustees or any such controlling
person, such notification to be given to the Distributor in writing at its
principal business office.

Section 9. DURATION AND TERMINATION OF THIS AGREEMENT

9.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors/Trustees of the Fund, or by the
vote of a majority of the outstanding voting securities of the Class Z shares of
the Fund and (b) by the vote of a majority of those Directors/Trustees who are
not parties to this Agreement or interested persons of any such parties and who
have no direct or indirect financial interest in this Agreement.

9.2 This Agreement may be terminated at any time, without the payment
of any penalty, by a majority of the Rule 12b-1 Directors/Trustees or by vote of
a majority of the outstanding voting securities of the Class Z shares of the
Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.

9.3 The terms "affiliated person," "assignment," "interested person"
and "vote of a majority of the outstanding voting securities," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.

Section 10. AMENDMENTS TO THIS AGREEMENT

This Agreement may be amended by the parties only if such amendment is
specifically approved by the Board of Directors/Trustees of the Fund, or by the
vote of a majority of the outstanding voting securities of the Class Z shares of
the Fund.

Section 11. GOVERNING LAW

The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act, the
latter shall control.

7
<PAGE>

[Section 11. LIABILITIES OF THE FUND

The name ________________________ is the designation of the Trustees under
a Declaration of Trust, dated ________, 19__, as thereafter amended, and all
persons dealing with the Fund must look solely to the property of the Fund for
the enforcement of any claims against the Fund as neither the Trustees,
officers, agents or shareholders assume any personal liability for obligations
entered into on behalf of the Fund.]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.

Prudential Securities
Incorporated

By:
----------------------
Robert F. Gunia
Senior Vice President

Prudential Equity Fund, Inc.

By:
----------------------
Richard A. Redeker
President

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 20 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 21, 1995, relating to the financial statements and financial highlights
of Prudential Equity Fund, Inc., which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Custodian, Transfer and
Dividend Disbursing Agent and Independent Accountants" in such Statement of
Additional Information and to the reference to us under the heading "Financial
Highlights" in such Prospectus.

/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
New York, NY
October 19, 1995

<PAGE>

PRUDENTIAL EQUITY FUND, INC.
(the Fund)

FORM OF
NON-DAILY DIVIDEND NON-MONEY MARKET FUND

PLAN PURSUANT TO RULE 18F-3

The Fund hereby adopts this plan pursuant to Rule 18f-3 under the
Investment Company Act of 1940 (the 1940 Act), setting forth the separate
arrangement and expense allocation of each class of shares. Any material
amendment to this plan is subject to prior approval of the Board of
Directors/Trustees, including a majority of the independent Directors/Trustees.

CLASS CHARACTERISTICS

CLASS A SHARES: Class A shares are subject to a high initial sales charge
and a distribution and/or service fee pursuant to Rule 12b-1
under the 1940 Act (Rule 12b-1 fee) not to exceed .30 of 1%
per annum of the average daily net assets of the class. The
initial sales charge is waived or reduced for certain
eligible investors.

CLASS B SHARES: Class B shares are not subject to an initial sales charge
but are subject to a high contingent deferred sales charge
(declining by 1% each year) which will be imposed on certain
redemptions and a Rule 12b-1 fee of not to exceed [.75 of
1%/1%] per annum of the average daily net assets of the
class. The contingent deferred sales charge is waived for
certain eligible investors. Class B shares automatically
convert to Class A shares approximately [seven] years after
purchase.

CLASS C SHARES: Class C shares are not subject to an initial sales charge
but are subject to a low contingent deferred sales charge
(declining by 1% each year) which will be imposed on certain
redemptions and a Rule 12b-1 fee not to exceed 1% per annum
of the average daily net assets of the class.

CLASS Z SHARES: Class Z shares are not subject to either an initial or
contingent deferred sales charge nor are they subject to any
Rule 12b-1 fee.

INCOME AND EXPENSE ALLOCATIONS

Income, any realized and unrealized capital gains and losses, and expenses
not allocated to a particular class, will be allocated to each class on the
basis of the net asset value of that class in relation to the net asset
value of the Fund.

<PAGE>

DIVIDENDS AND DISTRIBUTIONS

Dividends and other distributions paid by the Fund to each class of shares,
to the extent paid, will be paid on the same day and at the same time, and
will be determined in the same manner and will be in the same amount,
except that the amount of the dividends and other distributions declared
and paid by a particular class may be different from that paid by another
class because of Rule 12b-1 fees and other expenses borne exclusively by
that class.

EXCHANGE PRIVILEGE

Each class of shares is generally exchangeable for the same class of shares
(or the class of shares with similar characteristics), if any, of the other
Prudential Mutual Funds (subject to certain minimum investment
requirements) at relative net asset value without the imposition of any
sales charge.

Class B and Class C shares (which are not subject to a contingent deferred
sales charge) of shareholders who qualify to purchase Class A shares at net
asset value will be automatically exchanged for Class A shares on a
quarterly basis, unless the shareholder elects otherwise.

CONVERSION FEATURES

Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be
effected at relative net asset value without the imposition of any
additional sales charge.

GENERAL

A. Each class of shares shall have exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and shall
have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other
class.

B. On an ongoing basis, the Directors/Trustees, pursuant to their fiduciary
responsibilities under the 1940 Act and otherwise, will monitor the Fund
for the existence of any material conflicts among the interests of its
several classes. The Directors/Trustees, including a majority of the
independent Directors/Trustees, shall take such action as is reasonably
necessary to eliminate any such conflicts that may develop. Prudential
Mutual Fund Management, Inc., the Fund's Manager, will be responsible for
reporting any potential or existing conflicts to the Directors/Trustees.

<PAGE>

C. For purposes of expressing an opinion on the financial statements of the
Fund, the methodology and procedures for calculating the net asset value
and dividends/distributions of the Fund's several classes and the proper
allocation of income and expenses among such classes will be examined
annually by the Fund's independent auditors who, in performing such
examination, shall consider the factors set forth in the relevant auditing
standards adopted, from time to time, by the American Institute of
Certified Public Accountants.

Dated: _________, 1995

<PAGE>
<ARTICLE> 6
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<NAME> PRUDENTIAL EQUITY FUND INC.
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<NUMBER> 001
<NAME> PRUDENTIAL EQUITY FUND INC. (CLASS A)

<S> <C>
<PERIOD-TYPE> 6-MOS
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<OVERDISTRIBUTION-GAINS> 0
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<EXPENSES-NET> 18,188,553
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000356683
<NAME> PRUDENTIAL EQUITY FUND INC.
<SERIES>
<NUMBER> 002
<NAME> PRUDENTIAL EQUITY FUND INC. (CLASS B)

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 2,257,581,848
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<ASSETS-OTHER> 192,629
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<OVERDISTRIBUTION-NII> 0
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<DIVIDEND-INCOME> 27,066,311
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<EXPENSES-NET> 18,188,553
<NET-INVESTMENT-INCOME> 16,104,855
<REALIZED-GAINS-CURRENT> 70,275,088
<APPREC-INCREASE-CURRENT> 301,816,359
<NET-CHANGE-FROM-OPS> 388,196,302
<EQUALIZATION> (7,361,338)
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,196,420,818
<NUMBER-OF-SHARES-REDEEMED> (987,010,424)
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<AVERAGE-NET-ASSETS> 1,769,956,000
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<PER-SHARE-NII> 0.08
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<PAGE>
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<CIK> 0000356683
<NAME> PRUDENTIAL EQUITY FUND INC.
<SERIES>
<NUMBER> 003
<NAME> PRUDENTIAL EQUITY FUND INC. (CLASS C)

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 2,257,581,848
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</TABLE>